Coping With Commoditization - The Third-Party Logistics Industry in The Asia-Pacific

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Competition & Change

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DOI: 10.1177/1024529420985240
third-party logistics industry journals.sagepub.com/home/cch
in the Asia-Pacific
Neil M Coe
Department of Geography, National University of Singapore
Abstract
Despite growing interest in logistics across the social sciences, there is still a persistent gap in
relation to work that explores the organizational and competitive dynamics of the independent
logistics industry, a sector worth almost US$1tn a year. This paper explores the nature, causes and
consequences of commoditization in the third-party logistics (3PL) industry, using evidence derived
from over 30 corporate interviews with the leading 3PL providers in the Asia-Pacific region.
Commoditization captures a mature stage of industry and market development in which goods
and services are widely available and interchangeable with those provided by other companies, and
hence price-based competition predominates. The paper profiles the strategic responses of 3PL
firms to the challenges of commoditization, which are associated with accruing scale, offsetting risk
and seeking to deepen relationships with clients, arguing that they are variegated due to the different
geographical and sectoral origins of the firms. Overall, it offers a profile of 3PL as a maturing industry
heavily conditioned by its intersections with client global production networks.
Keywords
3PL, Asia-Pacific, commoditization, competition, logistics, restructuring
Let’s put it like this: for me, the more complexity, the more profitability. The more commod-
itized, you are dead.
(Manager, Japanese 3PL firm, 2016)
Corresponding author:
Neil M Coe, Department of Geography, National University of Singapore, 1 Arts Link, Kent Ridge 117570, Singapore.
Email: geonmc@nus.edu.sg
2 Competition & Change 0(0)
Introduction
The last decade has witnessed a notable and overdue increase in social science research on
logistics, defined broadly as the integration of physical modes of transport and storage with
IT-based systems of inventory management. Long-standing supply chain management per-
spectives emanating from business and management schools (e.g. Christopher, 2016;
Rushton et al., 2017) have been joined by work exploring, among others: the links between
logistics and contested patterns and processes of urban and regional development (e.g. Hall
and Hesse, 2013; Vormann, 2015); working conditions and labour organizing strategies
within the logistics sector (e.g. Bonacich and Wilson, 2008; Gutelius, 2015); and, under
the rubric of ‘critical logistics’, the violences, power relations and political underpinnings
of logistical infrastructures (e.g. Chua et al., 2018; Cowen, 2014). These exciting intellectual
trajectories have seen scholars from economic and transport geography, political science,
sociology, labour studies, and architecture and planning, among others, joining the debate
(Coe, 2020).
Across these bodies of work, however, a long-standing lacuna remains in relation to
research that explores the organizational and competitive dynamics of the independent logistics
industry (for notable exceptions, see Aoyama et al., 2006; Cui and Hertz, 2011; Rodrigue,
2012). While there is growing appreciation of the role of logistics providers in facilitating the
development and operation of client-sector global production networks (GPNs) (Coe, 2014),
and considerable work in the supply chain tradition on how client firms make outsourcing
decisions and choose and evaluate logistics providers (e.g. Hwang et al., 2016; Vaidyanathan,
2005), there is sparse understanding of intra-logistics industry dynamics and how those, in turn,
are shaped by the intersections with client demands. As Cui and Hertz (2011: 1005) correctly
diagnosed in a statement that still holds true today, ‘logistics firms are not often discussed from
the network perspective’. There is also a need to explore these interrelationships in dynamic
terms as the independent logistics industry matures and faces a growing range of competitive
challenges – many of the few studies that do look at the roles and strategies of independent
logistics firms are now quite dated (e.g. Berglund et al., 1999; Bolumole, 2003; Hertz and
Alfredsson, 2003). As such, this paper explores the intra- and inter-firm relationships of the
leading global logistics providers to begin addressing these questions. Specifically, it focuses on
third-party logistics firms (3PLs) – independent, outsourced providers of integrated logistics
services, the global market for which was worth US$951bn in 2018, up from US$681bn in 2010
(data from Armstrong and Associates [A&A]).1
The empirical domain for the research is the Asia-Pacific region.2 The Asia-Pacific
market represents an estimated 40% of the global total – with China and Japan alone
constituting 70% of Asia-Pacific revenues – and is growing in significance over time,
having accounted for 32% of the global total back in 2010 (www.3plogistics.com, accessed
6 December 2020). Intra-Asia logistics revenues are the fastest growing category at the
global level, driven by several intersecting dynamics: Asia’s continued role as a strong
manufacturing hub within the global economy and shifting regional production networks
therein; strong growth in middle-class consumption across the region which means that it is
increasingly an important destination for, as well as source of, commodities within the
global economy; and explosive recent growth in business-to-consumer (B2C) e-commerce
in the region, and China in particular, which is driving expansion in both cross-border and
intra-national home delivery systems for consumer goods. More broadly, the past decade
has been a turbulent one for the 3PL sector, with over-capacity and slack aggregate demand
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since the global recession of 2008, and the rapid uptake of new digital technologies and the
aforementioned restructuring of B2C logistics, creating a challenging competitive environ-
ment (The Economist, 2018). In this context, the Asia-Pacific is of increasing significance for
many global 3PL operators (Rimmer, 2014).
Previous research has suggested that the centrality of logistics to the functioning of
contemporary GPNs might lead to 3PL providers becoming strategic partners of their
key clients, upgrading into higher value-added functions and securing enhanced profits
through so doing (Coe, 2014; Zacharia et al., 2011). While evidence of such relationships
was revealed in this research, the dominant finding, by contrast, was of a progressive com-
moditization of the 3PL market in which firms have faced increasingly difficult competitive
conditions and weak power relations with respect to major clients (see opening quote).
Interestingly, while the term ‘commoditization’ was used widely by research participants
to describe these prevailing industry trends and conditions, it barely registers in the aca-
demic literature (for exceptions, see Holmes, 2008; Reimann et al., 2010). In general terms,
however, it captures what are known as intense industry competitive conditions in the
business literature (e.g. Porter, 1980).
This paper seeks to make three specific contributions with respect to the commoditization of
logistics. First, it demonstrates the progressive commoditization of the 3PL industry and
reveals the underlying drivers, most importantly relating to evolving client expectations and
requirements, but also associated with new types of competitors and the demand conditions of
the global economy over the past decade. In doing so, conceptually it mobilizes a ‘twin’ GPN
perspective that focuses on the intersections of client and logistics industry production net-
works. The core argument is that the nature of these inter-industry intersections, and the power
and contractual relations therein, serve to mitigate against the formation of strategic partner-
ships across large portions of the logistics industry. In turn, these contracting pressures directly
influence how 3PLs manage their own production networks. Second, the paper analyses the
various strategic responses of 3PLs to the conditions of commoditization, which are associated
with accruing scale, offsetting risk and seeking to deepen relationships with clients. A third
underlying argument running through the analysis is that the experiences of, and responses to,
commoditization of the leading 3PL firms in the Asia-Pacific are highly variegated, due to the
different geographical and sectoral origins of the firms concerned. Specifically, firms that are
embedded with wider business groups and/or fall under private and family modes of ownership
are on average less exposed to the impacts of commoditization.
Accordingly, the paper is structured into four further sections. The next section intro-
duces the activities of 3PL firms and conceptualises their dual role as both lead firms in their
own production networks and key suppliers to lead firms in other GPNs. The second briefly
profiles the sample firms and their varied origins and attributes. The third characterises
commoditization processes in logistics markets and their drivers, while the fourth profiles
four strategic responses of 3PL firms and considers how they may intersect differentially
across 3PL firms of different types.
Third party logistics: An intersecting global production network

perspective
3PL firms are important nodes in intersecting GPNs of two kinds (cf. Aoyama and Ratick,
2007; Rimmer, 2014). As depicted in Figure 1, on the one hand, they are service providers to
their key clients, facilitating the smooth functioning of client sector GPNs through the
provision of integrated logistics services (inter-industry networks). Although they may
encompass a wide range of services, broadly their activities can be divided into two main
areas: the freight-forwarding function in which cargo is moved internationally by sea or air,
and the contract logistics function in which land-based warehousing and road/rail haulage
services are provided. 3PLs are thus key intermediary agents that provide an apparently
‘seamless’ logistics service to their clients. This is the way that 3PL firms are generally
studied, namely as important specialized suppliers to clients who are lead firms in GPNs
in their own industries.
On the other hand, in order to provide those services, they coordinate subcontracted net-
works of ‘2PL’ transportation and warehousing suppliers across multiple geographies (intra-
industry networks). As Figure 1 depicts, the four main areas of activity that require manage-
ment and coordination are sea transport, air freight, road and rail haulage and warehousing.
This will typically involve complex combinations of in-house and subcontracted provision,
especially in road haulage and warehousing, and tiered, flexible relationships involving differ-
ent lengths of contract and levels of commitment. As such, while globally the 3PL industry is
dominated by a small group of integrated providers with extensive footprints, such as DHL,
Kuehne þ Nagel, DB Schenker and Nippon Express, much of the broader industry remains
resoundingly local, and is constituted by domestic small- and medium-sized enterprises with
relatively limited geographical remits. The network is further complicated by the way in which
3PL firms also engage with subcontractors and partner firms in terms of core technologies such
as warehouse management systems, IT development, automation, and packaging and repair
systems (Marja-Aho, 2014). From the perspective of GPN theory (Coe and Yeung, 2015), large
global 3PL firms can therefore also be thought of as lead firms in their own right, coordinating
transnational networks of firms in seeking to create and capture economic value. This aspect is
far less studied in the existing literature on the logistics industry (Cui and Hertz, 2011).
3PL firms are therefore simultaneously specialized suppliers to clients and lead firms in
their own GPNs. As Figure 1 depicts in very stylized terms, the inter-industry intersections
between the two types of GPNs create a complex mesh of both vertical and horizontal
connections between what Cui and Hertz (2011) term ‘industrial supply chains’ and ‘logistics
service supply chains’. Clients tend to use multiple 3PL firms (3PLs 1–3 in the figure),
breaking up their business by both function and geography, while 3PLs perform the inter-
mediary function of consolidating business across multiple clients in different industries and
localities (clients 1–3 in the figure). The picture is further complicated by the fact that client
firms rarely entirely outsource logistics provision, so 3PL firms also often effectively com-
pete with distribution functions still vertically integrated within client firms. As a result, in
‘the highly competitive 3PL industry, margins are small such that companies need to focus
on efficiency and standardized processes. By specializing in very specific niches in the trans-
portation industry, 3PL companies exploit economies of scope and economies of scale
across multiple firms, thereby broadening opportunities to optimize and reduce costs’
(Zacharia et al., 2011: 48). At the same time, as K€ onig et al. (2019) describe, these processes
of optimization and standardization have the effect of reducing the bargaining power of
3PLs and making it hard for firms to differentiate themselves.
A ‘twin’ GPN perspective thereby allows the mutual constitution of the two sets of
networks and the directions of influence between them to be highlighted. The research on
which this paper is based sought to explore the role and position of 3PL firms within the web
of inter-firm relationships shown in Figure 1 in order to shed light on the power relations
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Figure 1. The position of 3PL firms in intersecting global production networks.
and competition for profits between 3PL firms and their major clients and suppliers
(Moody, 2019). In that context, Figure 1 gives a very broad indication of the prevailing
power relations within the networks. Most importantly, and as Gutelius (2016) argues,
logistical requirements and the underlying power relations are heavily determined by lead
firms in client GPNs. As a result, 3PLs continue to operate primarily in the mode of spe-
cialized suppliers, rarely achieving the status of strategic partners. The remainder of this
paper seeks to explore how the nature of these GPN intersections, in combination with
wider logistics industry conditions, is driving a commoditization, or intensification of cost-
based competition, within the 3PL market. Before exploring these dynamics in more detail,
it is first necessary to introduce the firms upon which this study is based.
Positioning the sample firms

The leading global 3PL operators in 2015 with significant Asia-Pacific operations are intro-
duced in Table 1; worldwide revenues of US$1.4bn were required to gain entry to the list.
According to A&A data, the 37 listed firms accounted for 29% of global 3PL revenues,
showing a considerable degree of concentration in the industry. The top 5 were significantly
ahead of the other providers and collectively accounted for 12.3% of 2015 global revenues,
while the top 10 constituted 17% of the total. The 37 firms together employed 998,500
workers, ranging from DHL – by far the highest with 183,000 employees – to NNR
Global Logistics (4,850), with an average employment level of 27,000.3 Six countries
alone were home to 30 of the 37 companies: the USA (10), Japan (6), Germany (6),
France (4), Denmark (2) and Switzerland (2). At a regional level, 14 were headquartered
in Western Europe, 12 in the Asia-Pacific, 10 in North America and 1 in the Middle East.
The 25 firms headquartered outside the Asia-Pacific region have by definition expanded
‘into’ the Asia-Pacific, while the 12 firms homed within the region have all expanded ‘out of’
the Asia-Pacific, albeit to differing extents: while NNR Global Logistics operates in 72
countries outside the region, Sankyu operates in just 5. Across the sample, this means
that the Asia-Pacific differs vastly in importance for the firms, ranging from 89% of rev-
enues in the case of Nippon Express to a low of just 8% for DSV in 2015.
It has long been recognized that the 3PL industry as a whole is extremely heterogeneous
and constituted by firms with different sectoral and geographical specializations (Aoyama
and Ratick, 2007; Bowen and Leinbach, 2006). However, by virtue of being leading global
firms, all the firms in Table 1 as of today are what might be termed ‘full-service providers’
(Lai, 2004) or ‘mega-carriers’ (Transport Intelligence, 2019), offering integrated and
technology-enabled combinations of freight forwarding and contract logistics services
across multiple geographies. Some also offer distinct ‘4PL’ services such as supply chain
management consultancy and/or ‘control tower’ services in which they coordinate the activ-
ities of other 3PLs for clients. For most firms the contribution of these 4PL services to
overall revenues is relatively small, however. The firms combine this breadth of service with
significant geographic reach – the average number of countries of operation for the 37 firms
in 2015 was 72, with an average of 17 countries in the Asia-Pacific.
Within this general picture, however, there are important differences between the leading
Asia-Pacific providers, relating to their different sectoral and geographical origins. Today’s
leading 3PL firms have origins in four different lines of business – express parcel and postal
services (e.g. DHL, UPS), road and rail haulage (e.g. DSV, Toll), shipping (e.g. Yusen, APL
Logistics) and traditional freight forwarding (e.g. Expeditors, Panalpina). These origins
inevitably affect the specialisms and revenues balance of the firms, with the former two
categories of firms tending to be strong in contract logistics, and the latter two in freight
forwarding. Firms such as XPO and Kerry, for instance, derive their revenues primarily
from contract logistics, while Panalpina and NNR Global Logistics depend on freight
forwarding for some 90% of their business; others, such as CEVA and Yusen, are more
in balance.4 Many remain part of business groups that reflect these origins – indeed, 21 of
the 37 firms in Table 1 are part of a wider group or holding company – although, as will be
demonstrated later, these connections are reworked over time to some extent through
merger and acquisition (M&A) processes.5
The origins and expansion patterns of the 3PLs also serve to shape their sectoral foci and the
nature of their client base. Corporate rhetoric aside, no firm is dominant across all sectors and
regions. In general terms, the clients of the leading global 3PLs almost by definition tend to be
large transnational corporations themselves, with the corresponding requirements for extensive
distribution systems that are best served by large 3PLs. Overall activity is concentrated in
sectors where production is highly globalized, notably electronics, automobiles, aviation, fast
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Table 1. The leading 3PL providers in the Asia-Pacific, 2015.
A&A 2015 2019 Operating Total

rank revenue revenue Home APAC operating
2015 Third-party logistics provider (US$m) (US$m) country countries countries
1 DHL Supply Chain & 29,562 27,302 Germany 37 188

Global Forwarding
2 Kuehne þ Nagel 21,100 25,875 Switzerland 22 118
International AG
3 DB Schenker Logistics 17,160 19,349 Germany 25 144
4 Nippon Express 15,822 19,953 Japan 18 44
5 C.H. Robinson Worldwide 13,476 14,630 United States 19 66
6 UPS Supply Chain Solutions 8,215 9,302 United States 31 143
7 DSV 7,574 14,355 Denmark 20 131
8 Sinotrans 7,314 11,200 China 17 29
9 CEVA Logistics 6,959 7,124 France 20 92
10 Expeditors 6,617 8,175 United States 22 112
11 Dachser 6,264 6,408 Germany 20 85
12 Panalpina 6,091 DSVa Switzerland 13 79
13 GEODIS 5,864 6,379 France 16 67
14 Toll Holdings 5,822 6,260 Australia 16 32
15 Hitachi Transport System 5,612 6,472 Japan 12 28
16 XPO Logistics 5,540 12,144 United States 9 34
17 GEFCO 5,387 5,365 France 6 43
18 Bollore Logistics 4,998 5,180 France 33 178
19 Hellmann Worldwide 3,987 2,974 Germany 25 104
Logistics
20 Agility 3,907 4,122 Kuwait 24 100
21 Yusen Logistics 3,835 4,410 Japan 17 44
22 Kintetsu World Express 3,729 5,067 Japan 16 37
23 UTi Worldwide 3,696 DSVa United States 22 143
24 Schneider Logistics 3,480 2,650 United States 1 4
25 FedEx Supply Chain & 3,178 2,310 United States 21 81
Trade Networks
26 CJ Logistics 2,888 7,173 South Korea 12 23
27 Damco 2,740 5,965 Denmark 20 114
28 Kerry Logistics 2,723 5,274 Hong Kong 20 40
29 Ryder Supply Chain 2,443 3,969 United States 2 6
Solutions
30 Sankyu 2,083 2,613 Japan 13 18
31 BDP International 1,900 n/a United States 22 104
32 Fiege 1,860 1,925 Germany 3 15
33 NNR Global Logistics 1,683 n/a Japan 21 93
34 Mainfreight 1,601 2,082 New Zealand 8 21
35 APL Logistics 1,561 1,630 Singapore 21 67
36 Arvato 1,561 n/a Germany 6 23
37 Penske 1,433 2,600 United States 1 6
a
UTi and Panalpina were bought by DSV in 2016 and 2019 respectively; n/a ¼ data not available, for privately owned
companies outside A&A’s top 50 in 2019.
Source: Armstrong & Associates (A&A) Top 50 Global Third-Party Logistics Providers (3PLs) and A&A ‘Who is who’
database. Data are based on company reports and A&A’s estimates. Firms in italics were NOT interviewed for this study.
moving consumer goods, apparel and healthcare/pharmaceuticals. Some also have specialisms
in niches such as moving hazardous materials or large industrial equipment. To give a few
examples, Yusen predominantly specializes in autos and electronics, Damco in retailing and
fast-moving consumer goods, Expeditors in oil/gas, autos, healthcare, aviation and retail, APL
Logistics in autos, retailing, consumer goods and industrial goods and Hyundai Glovis in
autos.6 Firms may also have specialisms within sectors, as one respondent described:
We focus on four key verticals: automotive, retail, consumer, and industrial. . .But even within
these verticals, we also have some foci. Say, for retail, we have more focus on the fashion apparel
areas. For automotive, it’s a long supply chain – we focus more on the finished vehicles. So we
do also have more focus within the verticals. (Japanese 3PL, 2016)
As depicted in Figure 1, these specialisms interact with customer demand to create a com-
plex geographical mosaic of 3PL–client relations segmented by function and geography.
These intersecting variations in terms of origins, group structure and functional/client spe-
cialisms are important in shaping how individual firms experience and respond to commod-
itization dynamics, as subsequent sections will show.
The commoditization of logistics

Diagnosing commoditization
While the term commoditization will be used here due to its resonance in the 3PL industry, it
denotes a set of dynamics that are more generally characterized as mature industry competition
in the business strategy literature. The industry-level dynamics that affect competition dynamics
and levels of profitability have been well studied since Porter’s (1980, 1998) seminal contribu-
tions 40 years ago. Porter identified five key forces shaping industry competition: rivalry among
existing players, the threat of new entrants, the threat of substitution, the bargaining power of
suppliers and the bargaining power of customers. In general terms, these create intense com-
petition in industry situations where competitors are numerous and of a similar size and power,
industry growth is slow, there are low switching costs, fixed costs are high, capacity is aug-
mented in large units and exit barriers are high. In a similar way, commoditization captures
market conditions in which ‘competitors in comparatively stable industries offer increasingly
homogenous products to price-sensitive customers who incur relatively low costs in changing
suppliers’ (Reimann et al., 2010: 188). Importantly, commoditization is an industry-level,
dynamic market condition that may evolve unevenly across different subsectors and geographic
contexts within that industry. Equally, it can affect business processes and service industries just
as much as manufacturing sectors (Davenport, 2005).
The defining features of commoditization can be readily observed in the contemporary
logistics sector and have been widely highlighted, both by respondents in this research and by
other commentators. The extent of commoditization has evolved over the past two-to-three
decades in parallel with the growth in outsourced logistics provision (Atkacuna and Furlan,
2009), leading to a situation today in which, as Gutelius (2016: 105) states, ‘the core service
offerings of the 3PL market are characterized by commoditization, not value’. Table 1 has
already shown the mixed performance of the sample firms in terms of revenue growth over the
period 2015–2019. The most obvious manifestation of commoditization, however, can be seen
in the generally low and declining profit rates in the sector. PWC (2016: 5) asserted that ‘in
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contrast with other industries, profits in logistics are relatively low. . .within this sector, EBIT
[earnings before interest and taxes] margins generally range from -1% to 8%’, also noting that
margins towards the top end of that range tended to be associated with global parcel/express
operators, while 2PL carriers were operating at sometimes close to zero profit. This aligns well
with the observation of one respondent, that for 3PLs:
In traditional EBIT return, a good EBIT return in the industry is 5 percent. If you are looking at
Panalpina or Schenker, which are two of the largest five, their EBIT is 3 percent and 4 percent.
(European 3PL, 2016)
Table 2, in turn, details EBIT data for the sample firms, where available, at five-year periods
from 2000 to 2018. While it is hard to make too much from the limited data points, the
figures do suggest an average profit margin of 4% to 5%, and a fall-off in margins since
2000. In assessing the table, it is also important to note that these are the leading global
firms within the industry, often with long-standing and established brands.
Many respondents also talked evocatively about commoditization and its characteristics,
identifying high levels of competition, pressure on profits, purchasing decisions taken largely
on price, and the problems of developing a distinctive service offering. For instance:
I think the industry has commoditized itself because what was a unique service offering five
years ago, now everyone offers that – so it becomes a pricing player. There is not a lot of
difference between the capabilities of different companies. . .maybe a slight difference in the
level of execution. . .it’s all cost driven. (American 3PL, 2016)
. . .unfortunately, with the way things are going today, price and credit are definitely taking over
the service and relationship part. Also because the service part is relatively limited. . .there is very
little added value. We are easily replaceable. (German 3PL, 2016)
Industry surveys offer further support to this evidence. EFT (2017), for example, found that
20% of respondents felt that commoditization was the biggest threat to growth with a
further 27% highlighting competition – the next biggest category was ‘stagnant global
growth’. Similarly, Gutelius and Theodore (2019: 20) noted that
competition in the 3PL market is cutthroat, and a key determinant for whether one 3PL wins a
contract over another is price. In a 2017 survey, 77 percent of lead firms reported that “lowest
cost” was the single most important factor in selecting a 3PL provider. . .3PLs operate in
highly competitive, price-sensitive markets where the primary value proposition is one of reduc-
ing costs.
As Vitasek et al. (2015) and some respondents detailed, for large 3PL firms this sometimes
means they have to turn down certain business on reputational grounds:
We are less into the play to just buy market share through lowest pricing. We typically would
not do that. At times we walk away from bidding. . . We are known as probably one of the more
expensive forwarders. We have that name in the market. But we also have the name of being one
of the best service providers in the market. (American 3PL, 2016)
Table 2. Profit and profit margins, 2000–2018.
EBIT (US$m) EBIT margin (%)

Rank out
of top 37 Third-party logistics provider 2000 2005 2010 2015 2018 2000 2005 2010 2015 2018
10 Expeditors 128 305 547 721 818 7.6 7.8 9.2 10.9 10.1
28 Kerry Logistics 31 145 100 333 431 49.5 20.3 7.2 12.2 8.9
18 Bollore Logistics 51 161 486 618 585 1.7 5 7.8 9.3 8.5
7 DSV 25 169 395 444 836 4.5 4.6 5.2 6 6.9
29 Ryder Supply Chain Solutions 295 477 316 619 553 5.5 8.3 6.2 9.4 6.6
6 UPS Supply Chain Solutions 309 156 597 764 852 19.3 2.6 6.9 8.1 6.2
5 C.H. Robinson Worldwide 117 326 623 858 912 4.1 5.7 6.7 6.4 5.5
15 Hitachi Transport System 84 86 192 252 326 3.7 3.5 4.3 4.2 5.1
16 XPO Logistics – –6 8 –29 704 – –14.5 5.5 –0.4 4.1
2 Kuehne þ Nagel 123 326 818 850 1004 2.4 3.1 3.8 4.2 4.0
International AG
4 Nippon Express 247 338 277 408 727 2 2.6 1.8 3.2 3.8
22 Kintetsu World Express 61 76 143 136 192 3.9 3.3 4.4 3.6 3.6
1 DHL Supply Chain & 106 373 826 291 1102 1.4 4 2.3 0.9 3.4
Global Forwarding
8 Sinotrans 0 152 118 253 372 0 4.1 1.8 3.6 3.3
20 Agility 13 432 242 221 119 25.5 27.8 4.2 5.1 3.1
3 DB Schenker Logistics 0 304 407 429 576 – 2.9 2.1 2.6 3.0
12 Panalpina 81 126 16 117 120 2.4 2.4 0.2 1.6 2.0
14 Toll Holdings 29 174 315 – 90 3.5 5.9 5.3 – 1.5
21 Yusen Logistics 40 89 60 80 – 4.8 6.2 3.1 1.9 –
Average EBIT Margin (%) 8.3 5.6 4.6 5.2 4.7
Source: Company Annual Reports, 2000–2018, and websites.
This was corroborated by a CEO at a May 2019 trade event who noted in relation to pricing
that ‘power is shifting to customers, there are no more secrets out there – sometimes you just
have to walk away. Customers have advanced, but the industry has not’.
Driving commoditization
This research has found that shifting client demand is the most important driver of com-
moditization dynamics in the logistics industry. Most critical is that, despite the hopes for
developing strategic partnerships between 3PLs and clients, in the vast majority of cases the
power relations are heavily in favour of the clients (Frisch, 2018; Gutelius, 2016). In general
terms, the ‘buyer power’ of clients derives from the fact as lead firms in their own GPNs they
are large purchasers of broadly standardized logistics services and, moreover, they usually
retain some internal logistics capacity and expertise. Importantly, though, these underlying
power relations are modulated somewhat by whether the client firm is influential within its
own industry, levels of market demand in that industry and relative firm size (Memedovic
et al., 2008). Bolumole (2003) usefully distinguished between three types of 3PL–client
relationships: transactional, arms-length relationships in which the client minimizes com-
mitment and maximizes the ability to switch provider; bilateral strategic partnerships in
which there are longer-term alignments and more information sharing; and full supply chain
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alliances in which there are shared strategic goals and full integration of activities. These
types have operational, tactical and strategic remits, respectively. While the firms in this
research all offered and aspired to the latter two categories, they were very candid that the
majority of business was of an operational, transactional nature, and that this clearly
framed the underlying power relations:
The relationship between customers and [logistics provider] is more akin to a “master and slave”
one, with power being in the hands of clients. (Japanese 3PL, 2016)
There is an imbalance absolutely. It’s clearly in the customer’s favour. Partnership is a widely
used term that I would say very rarely applies. (European 3PL, 2016)
Client firms use 3PLs in ways that simultaneously engender competition, transfer risk and
help them manage volatility (Gutelius and Theodore, 2019). Over a decade ago, Ojala et al.
(2008) noted that leading global firms may use between 20 and 40 3PL providers. While
there has certainly been some streamlining since then, the idea of exclusive global contracts
for 3PLs remains almost entirely elusive. As Figure 1 intimates, large clients continue to split
their logistics contracts across a broad range of providers for several intersecting reasons –
to spread both temporal and geographical risk, to maintain a high level of competition
between 3PL firms, and to tap into the sectoral and geographical specialisms and strengths
that reflect the different corporate origins and histories of the 3PLs:
I think they look at around 7-10 partners at different parts of the value chain because no one
person can offer everything from the sourcing part to the downstream across the world. So in
terms of global partners, they look at around 6-10 and then of course in some countries, they
would have tactical partners too. (Japanese 3PL, 2016)
While there was some evidence of regional level agreements in the research interviews,
the vast majority of contracts were nationally based or connected to a particular air or
sea freight route. For instance, a 3PL might have the contract to manage an auto
manufacturer’s supply chain in Thailand, to distribute luxury goods into Singapore, or to
ship completed electronics products from Malaysia to the USA. Moreover, as
Newsome (2010) points out, it is important to remember that in many cases 3PLs
are also in competition with the in-house distribution operations of clients in addition to
other 3PLs.
The shifting nature of procurement in client firms is thus pivotal to understanding the
increased levels of commoditization on the sector. Vitasek et al. (2015: 3) describe the pro-
cess well:
In the not too distant past, the users of 3PL services – the logistics and supply chain experts
within a GSC [Global Shipper and Consignee] – played the primary role in purchasing 3PL
services. However, this has been changing in recent years and continues to evolve as many GSCs
seek to create a centralized procurement function. GSCs are accomplishing this by creating
“commodity managers” who are chartered as category experts with control over buying 3PL
services. This has the effect of shifting the buying power away from the actual users and/or
consumers of 3PL services to procurement experts who are distanced from the 3PL services
themselves.
They describe how this leads to heavily itemized contracts that allow for easy comparison
across 3PLs, creating an ‘over-commoditized’ situation in which 3PLs are not incentivized
to invest in innovation and service development. This resonates with the accounts given by
respondents, for instance:
What I’ve seen over the last few years is. . .the procurement managers are becoming more pow-
erful, they make the final call and they look at the lowest cost denominator in the final decision
making, rather than really looking at the service provider’s ability to provide a secure and steady
supply chain. (German 3PL, 2016)
In effect, the logistics sourcing function within many client firms has increasingly become a
centralized, cost-driven activity rather than one steered by supply chain specialists in those
businesses.
Other kinds of drivers have fed into this intensification of client demands. In particular,
there have been two new categories of market entrant that have increased the competitive
pressure on 3PLs, particularly in the last five years of so, in ways that have hitherto been
little studied in the literature (Hofman and Osterwalder, 2017). First, in the freight forward-
ing area, new asset-light competitors are threatening to dis- or re-intermediate services
through different kinds of technology-enabled forwarding services. Most importantly,
freight marketplaces act as independent forums for quotations and freight booking, for
instance Flexport, Freightos and Shippo; some 3PLs are responding by offering their own
online booking platforms. These new marketplaces are evident not only in freight forward-
ing, however, with others – for instance Nimber, Roadie and Uber Freight – looking to tap
into the so-called gig economy for the delivery of express mail and parcels. These develop-
ments are being driven by new start-ups, which importantly often have access to significant
levels of capital through venture capital markets, rather than the 3PLs themselves (K€ onig
et al., 2019). As such, they have significant disruptive potential in a sector that is generally
seen as a laggard in terms of technological adoption:
It would be amazing if forwarding is not a place where at some point somebody has got to say,
we can tie this in through some kind of a platform that can do this at a significantly lower cost.
So there is a Uber of logistics. . .So there’s both the sharing of capacity, but there is also just the
interim platform. . .At some point I think somebody is going to show up, and that is going to be
very painful. (European 3PL, 2016)
To give you one thought, the last great innovation in freight forwarding was the invention of the
20 foot box. . .. (German 3PL, 2016)
Second, the 3PL market is also starting to be reconfigured by the explosive recent growth of
B2C e-commerce. This has led to more and more products being shipped directly to consum-
ers on tight timelines, raising a host of issues associated with the costs and intricacies of
so-called last mile delivery (Wang and Xiao, 2015). This e-commerce is increasingly being
coordinated by huge platform companies such as Amazon, Alibaba and JD.com who have
significant internal logistics assets and capacity and, if anything, are driving a re-
internalization of B2C logistics (Rimmer and Kam, 2018; Rodrigue, 2020). As one commen-
tator recently stated (Transport Intelligence, 2019: 101), the ‘role of Amazon and Alibaba in
Coe 13
the logistics sector is still yet to be fully understood. Amazon is a partner, customer and –
crucially – a competitor to many contract logistics providers’. According to respondents:
They haven’t really started, but they have started a little bit. But those guys, Alibaba and
Amazon, if they both get involved then we are all screwed. (European 3PL, 2016)
The ongoing reconfiguration of B2C logistics – into a new era of omnichannel consumer logistics,
using the terminology of Rimmer and Kam (2018) – poses challenges to 3PL firms whose basic
business model is predominantly built around large volume B2B shipments. Moreover, they are
not as attuned to the consumer data analytics used by firms such as Amazon and Alibaba to
manage their fine-grained distribution activities (Kenney and Zysman, 2020):
The problem is that you have pretty much fixed costs, very large networks, and B2C customers
are generally not located in industrial areas. They are in residential areas, and they are generally
not home, because you and I work. And so, to support that type of business models, integrators
almost needed to set up a second network, a last mile network, and that is very costly. And it
doesn’t pay. Because you know, I can deliver it to you, you are not going to be home, I will have
to take it back. (French 3PL, 2017)
It also tends to be these well-capitalized ‘new’ logistics players that are leading the devel-
opment of new physical distribution infrastructures involving, for instance, locker systems,
drones and autonomous vehicles (Hofman and Osterwalder, 2017).
A final, contextual, driver of commoditization relates to ‘external’ shock of the global
recession that unfolded in 2008, underlying conditions which have of course recently been
exacerbated by the Sino-American trade war since 2018 and the COVID-19 pandemic that
started to develop in early 2020. It is widely recorded that a combination of over-capacity
and falling demand in the subsequent decade has suppressed shipping rates, particularly in
ocean freight, leading to struggles between 3PLs and shipping lines over increasingly fine
margins. This is despite shipping lines pursuing, as they have done historically, a range of
strategies to prop up rates, most notably through merger and acquisition activity, shipbreak-
ing and laying-up capacity in so-called outer port limits (Sibilia, 2018):
. . .it is very, very cost-driven – especially in this market. The freight market is in one of its lowest
times right now, over-capacity, global trade getting disrupted all over the place, non-tariff
barriers, new strange regulations coming in some places. . .. (German 3PL, 2016)
In sum, these intersecting dynamics are serving to drive commoditization but also suggest that
the 3PL segment may be on the cusp of more major restructuring, especially as the compe-
tition from Internet-based platforms and new modes of e-commerce logistics intensifies.
Strategic responses to commoditization

I now move on in this section to profile four intersecting strategies that large 3PL firms in the
Asia-Pacific are using to try and deal with the challenges of commoditization. In general
terms, intense cost-based competition tends to lead to business approaches that prioritize
efficiency and simplicity, calculability and predictability, tight control and repetition, and
incremental innovation. Three other competitive responses have been noted in the literature
(e.g. Holmes, 2008; Reimann et al., 2010), all of which are evident in the logistics industry as
this section will demonstrate. First, firms may pursue consolidation strategies through mergers
and acquisitions in order to generate economies of scale and organizational efficiencies.
Second, and perhaps counterintuitively, the maintenance of close personal client relations,
or ‘customer intimacy’, can become the most important strategic priority for firms, usurping
operational excellence and product leadership. Third, they may pursue enhanced processes of
outsourcing and offshoring of non-core activities. A further, fourth strategy detailed here
relates to attempts to rebalance activities towards the more stable and higher margin parts
of the logistics business in the areas of contract logistics and associated value-added services.
Taken together, however, while these strategies may assist firms in mitigating the effects of
commoditization, they generally do not serve to redress the underlying client firm-3PL power
dynamic and allow the forging of strategic partnerships. This is due to the competitive dynam-
ics inherent to the prevailing subcontracting model and the cost benefits therein for client
firms.
Consolidation
A first key strategy to offset commoditization has been the pursuit of scale and geographic
coverage through M&A activity. While such restructuring or ‘reintegration’ has long been a
feature of the industry (Aoyama et al., 2005), it has demonstrably accelerated in the highly
competitive market conditions since the 2008 global economic crisis: the exhaustive A&A listing
of 3PL M&A activity, for instance, recorded 59 deals over the period 1997–2007 and 149 deals
during 2008–2019. Industry commentators Transport Intelligence (2019: 21) describe recent
years as a ‘frenetic period of acquisition’, with commoditization a leading driver:
Many segments within the logistics industry are commoditised. The largest companies have
sought to address this challenge by making targeted acquisitions which increases their exposure
to vertical sectors or supply chain segments in which there is less competition. At the same time,
they can leverage their own competitive advantages, such as access to finance, intellectual cap-
ital, IT capabilities and global scale.
With respect to the leading 3PLs in the Asia-Pacific, the listing in Table 1 was analyzed each
year over the period 2015–2019, and compared with historical lists, to monitor ongoing
consolidation activity. Since the study commenced, five major deals have affected firms in
the listing:
• Japan Post purchased Toll Holdings (no.14 in list) for US$5bn in May 2015.
• Kintetsu World Express (no.22) purchased APL Logistics (no.35) for US$1.2bn in May
2015.
• DSV (no.7) purchased UTi Worldwide (no.23) for US$1.3bn in January 2016.
• The shipping line CMA CGM acquired CEVA Logistics (no. 9) in April 2019 for US$1.6bn.
• DSV (no.7) bought Panalpina (no.12) in August 2019 for US$5.5bn.
Such M&A activity allows the incorporation of complementary geographical coverage,

and in some cases there is also a functional rationale, i.e. to gain particular competencies or
infrastructure. At the same time, it provides greater scale for firms to ‘buffer’ commoditized
markets and to be able to switch to segments and geographies where margins are greater.7
Coe 15
Corporate culture also plays a part, with some firms being particularly notable for the way
in which they have aggressively used M&A activity to build a global presence. For instance,
C.H. Robinson has undertaken 19 acquisitions since 1998 while XPO Logistics has com-
pleted 16 deals since 2012 – including the notable purchase of the European trucking and
warehousing firm Norbert Dentressangle in 2015 for US$3.5bn. Indeed, referring back to
Table 1, it is very evident that the firms most able to significantly expand their total revenues
over the period 2015–2019 are serial acquirers (e.g. DSV, XPO Logistics, CJ Logistics).
Two further points are apposite here. First, and as detailed earlier (see Note 5), many 3PL
firms are embedded in wider business groups, and hence the strategic importance of the 3PL
operation to the wider group varies considerably. For example, for the big three parcel
groups in 2015, 3PL revenues accounted for 50% of Deutsche Post DHL’s revenues, 16%
of UPS’, and just 3% of Fedex’s. This wider corporate context may serve to buffer, to
differing degrees, the 3PL firms during challenging periods. It was documented at the
time, for instance, that being part of the Maersk group protected Damco from going bank-
rupt in 2013 and allowed it to raise funds both internally and externally. Moreover, 3PL
firms embedded in business groups that extend beyond transport and logistics may benefit
from stable levels of ‘captive’ intra-group business. This is particularly the case for Japanese
and South Korean 3PLs embedded within wider keiretsu and chaebols, respectively (e.g. CJ
Logistics/CJ Group, Hyundai Glovis/Hyundai Kia Autos, Pantos/LG). Second, the nature
of the financial drivers at 3PL firms is also determined by the exact mode of ownership of
the firm/group. While the majority of firms in Table 1 are publicly listed, a significant subset
are either family/privately controlled (e.g. Arvato, Bollore, Dachser, Hellman and Rhenus)
or state-owned (e.g. GEODIS/SNCF and GEFCO/JSC Russian Railway). All of the firms
interviewed in such categories (six in total) were clear that these modes of ownership
brought more financial stability and longer term investment horizons than the quarterly
reporting and associated monitoring procedures required at listed companies. For instance:
. . .we were and we still are a family owned company, and this means a lot to us. . .We are market
driven when it comes to product and competition but we are not driven by the stock exchange,
we are not being driven by quarterly result, not being driven by a quest for growth at all costs.
(Family-owned German 3PL, 2016)
Management structures and customer intimacy

A second set of strategies relate to seeking the appropriate internal organizational structure
to maximize ‘customer intimacy’. Indeed, Reimann et al. (2010) note the prime importance
of this strategy in highly commoditized industries given the limited other ways in which
differentiation can be pursued. Accordingly, several respondents noted a seeming contra-
diction in client relations, namely that against a backdrop of ongoing commoditization and
a large proportion of transactional business, personal relations remained of vital importance
in securing business:
I will say that 70-80 percent of the time the shipper looks for the cheapest. But I want to qualify
that statement. Actually in our industry, relationships come first. A lot of relationship building.
That’s where we know whether we are the cheapest. (Japanese 3PL, 2016)
Several firms had thus undertaken organizational restructuring – and in some cases more
than one round – in a bid to ensure a responsive and nimble structure, with customer
intimacy nearly always referring to geographical proximity on a national market basis in
order to facilitate responsiveness to client demands.
The firms adopted three broad types of organizational structure. In the first, geographical
structures, i.e. national and regional units, were given priority in terms of financial account-
ability and decision-making. In this model, functional units handling, for instance, sea freight,
air freight and warehousing, were subsumed within and secondary to the geographical struc-
tures. The second organizational mode utilized a functional system in which regional or global
freight and contract logistics divisions were given organizational precedence. Here, different
logistics functions were given priority over geographical units in organizational terms. In the
third, firms established either a matrix that held both dimensions in balance, or a hybrid in
which functions were subsumed at a regional rather than national level:
Before each business unit was not close to each other. It was very vertical. . .We want to be more
hybrid. We want it more merged. So each region has the regional responsibility, and also at the
same time each region has these [functional] units. (Japanese 3PL, 2017)
In such a structure, a given unit (e.g. contract logistics) within a specific country might have
dual lines of reporting to both the national subsidiary but also the contract logistics function
at the wider regional or global scale. In turn, some firms had spatially variable internal
organizational structures reflecting the stage of evolution of their operations in the Asia-
Pacific region. For instance:
In Asia, we are not big enough to have a vertical oriented structure. In US, we do strictly vertical
based. . .in Asia it’s geography. Europe is a bit of a mixture. . .. (US 3PL, 2019)
Looking across the firms, however, the most prevalent mode of organization was by geog-
raphy, i.e. country operations reporting to a regional headquarters. Within such structures,
a common tendency was for firms to be as ‘flat’ as possible and to minimize the regional
tiers between the national level and global headquarters. One firm, for instance, was in the
process of removing all intervening layers:
So the way we are organized is we have a CEO and 17 clusters around the world. Asia Pacific is
six clusters, there are two in China, two in Eastern China, and then Australia/New Zealand, you
have Mekong. . .and that’s it. And the rest of the 17 clusters cover the rest of the world. So the
reporting is very simple, it goes straight directly to the CEO. (French 3PL, 2017)
Interestingly, some respondents described a toggling back and forth between these modes
as firms sought to negotiate the tension between ‘global thinking’ and ‘local expertise’
that Aoyama et al. (2006: 338) diagnosed in stating that: ‘although the logistics
industry serves an integral function in the globalization of production, it also
remains one of the most localized and embedded industries of all’. Some were trying to
re-implement geographic structures after finding that functional divisions had become
detached from ‘the ground’ and the constitution of particular markets. The perceived
benefits of flat, geographically-organized structures were seen to relate to the volatility of
3PL markets:
Coe 17
. . .decisions are a lot faster, and a lot more efficient . . .you don’t have anyone you need to report
to in the region, another couple of layers up, before going to the CEO. The market is dynamic,
and it is changing, so the reality is that we need to shape ourselves into a more efficient, nimble
and flexible model. (French 3PL, 2017)
Asset strategies and subcontracting

A third way in which leading 3PLs seek to manage the challenges of commoditization is
through their strategies in relation to the ownership of physical assets, most notably trans-
port modes (trucks, aircraft, etc.) and property (e.g. warehouses) (Rodrigue, 2012). The
research identified three main asset strategies. First, there was an ‘asset-light’ model (that
overlaps with a consultancy-based/4PL approach) in which all assets are rented, leased or
their provision subcontracted. Second, at the opposite end of the spectrum is an ‘asset-
heavy’ model in which the firm directly owns assets; the big three parcel firms, for instance,
famously own their own planes and trucks, which can also be used to underpin 3PL services.
Third, and most commonly used, is an ‘asset-appropriate’ strategy in which firms invest
directly in asset ownership in instances where market and regulatory conditions means it
makes good business sense. APL Logistics has invested in dedicated rail hardware in India,
for example, to facilitate its distribution of finished cars in that particular market. Another
firm described that:
I would say that we are an asset-appropriate organisation, because we don’t own any ships, or
own any airplanes. But for certain places. . .where we feel it is important to have ownership, to
drive inefficiency out, we will definitely put our investment in. (Swiss 3PL, 2016)
On the ground, firm asset strategies vary geographically across markets, usually reflecting
stronger asset ownership in the home country and region. Rhenus and Arvato, for example,
two German firms who have been relative latecomers to the Asia-Pacific, are asset rich in
Germany and the rest of Europe but have chosen to employ asset light strategies when
expanding into Asia. Another firm described how:
In Japan we have good assets, this is historical. Overseas, we want to try and have the best mix
of own assets and subcontracting. . .Each country has its own situation and reason how much we
go for own assets and how much is subcontracted. We try to consider country by country.
(Japanese 3PL, 2017)
In the Asia-Pacific, the number of markets involved and the perceived level of complexity
and variation therein has meant that the majority of firms, regardless of origin, have chosen
asset light or appropriate strategies for their operations. The standard three-to-five year
contracts with clients can also serve as a limit on major capital and technology investments
by 3PLs, although some of the very largest firms, such as DHL, are investing in new tech-
nologies for e-commerce warehouse and deliveries (Gutelius and Theodore, 2019).
The use of asset appropriate strategies gives 3PL firms spatial and temporal flexibility in
delivering their services, and it concomitantly allows them, in the context of increasingly
commoditized markets, to transfer risk to, and extract value from, their subcontractors.
Asset strategies, then, directly shape the supplier networks established by 3PL firms in
different territories; in contexts where they pursue an asset light strategy, subcontracting will
be more extensive than in contexts where the 3PLs own or control more assets.
We have had trucking companies, we sold them all off. So we only use third party. . .it’s quite a
cost based industry, but we are trying to become a more important partner to them. But I think
we have generally just relied on picking whoever gives the lowest price. (European 3PL, 2016)
Similar to client relationships, supplier networks take the form of a complex mosaic of
relationships differentiated by function, geography and level of commitment. Beyond the
firms associated with parcel operators, ownership of aircraft and shipping vessels is negli-
gible, meaning that 3PLs tend to have established relationships with 5 to 10 airlines and
shipping lines for air and sea freight. Generally, however, these relationships are specific to
national markets or specific routes, and are not negotiated at a regional or global level.
Contracts are generally short-term – one year at the most – and are renegotiated regularly.
In terms of road haulage, while some 3PLs will directly own or lease vehicles in particular
territories, generally a significant proportion will be outsourced to local providers, who are
often tiered into different levels of suppliers – for instance, ‘strategic’, ‘preferred’ and
‘approved’ – with tapering degrees of contractual commitment further down the tiers.
Warehouses tend to be operated under long-term leases and managed by the 3PLs. Here,
though, there is extensive use of local staffing agencies (Gutelius, 2015) to cover both sea-
sonal variations but also the provision of often labour-intensive ‘kitting’ services associated
with re-packaging and labelling goods for customers to meet the demands and tastes of
specific markets (see next section). Taken together, the geographically varied use of tiered
providers for air and sea transport, road haulage and staffing is designed to give the 3PL
firms both flexibility and lower costs through the competitive allocation of short-term
subcontracts.
Building up contract logistics and value-added services

A fourth strategy, and one which reflects the evolving nature of the freight forwarding and
contract logistics markets, is to endeavour to switch revenues from the former to the latter
domain. This indicates a desire to rebalance revenues towards more profitable and stable
activities and at the same time potentially develop deeper relationships with clients
(Wallenburg, 2009). Interestingly, as K€ onig et al. (2019) detail, the topic of how service
firms such as 3PL operators seek to reposition their service portfolio in competitive indus-
tries has been hitherto little studied. Table 3 profiles the shifting balance of revenues, where
figures are available, for the sample firms over the period 2000–2015. While the data are
somewhat patchy, of the 17 listed firms 11 have seen an increase in contract logistics
revenues, some quite substantially – at DHL, for instance, such revenues grew from 28%
to 53% of the total over the period 2005–2015. In general, the data show the continued
prevalence of freight and forwarding activity across the firms (which includes road transport
in this classification), with only three firms securing 50% of revenues or more from contract
logistics. Notwithstanding data limitations and gaps, however, it is possible to detect a
broad trend of firms moving more into contract logistics.8
These trends were reinforced by interview respondents, who noted a desire to shift away
from the intensely competitive and low margin freight forwarding segment towards higher
margin supply chain and warehousing activities. Those higher margins reflect both the
Table 3 3PL revenues by broad segment, 2000–2015.
Coe
Revenue freight and forwardinga (%) Revenue supply chain and contract logisticsb (%)
Rank out Third-party logistics
of top 37 provider 2000 2005 2010 2015 2000 2005 2010 2015
1 DHL Supply Chain and – 72 51 47 – 28 49 53

Global Forwarding
2 Kuehne þ Nagel 88 90 78 77 12 9 21 23
International AG
3 DB Schenker Logistics – – 91 85 – – 9 15
4 Nippon Express – – 84 80 – – 16 20
5 C.H. Robinson 85 84 83 89 15 16 17 11
Worldwide
6 UPS Supply Chain 0 13 25 30 100 87 75 70
and Freight
7 DSV – 96 90 88 – 4 10 12
8 Sinotrans – 97 97 81 – 3 3 19
10 Expeditors 88 82 61 75 12 18 39 25
12 Panalpina 81 84 88 91 19 16 12 9
14 Toll Holdings – 69 72 – – 31 28 –
16 XPO Logistics – 89 100 65 – 11 0 35
19 Hellmann Worldwide – – 80 78 – – 20 22
Logistics
20 Agility 0 45 – – 48 49 – –
22 Kintetsu World Express 100 81 80 76 0 19 20 24
28 Kerry Logistics – – 56 50 – – 44 50
29 Ryder 70 71 76 76 30 29 24 24
a
Forwarding and freight operations include sea, air, road, intermodal and customer brokerage.
b
Supply chain and contract logistics operations include contract logistics, solutions and warehousing.
Source: Company Annual Reports 2000–2015. Columns may not add to 100% in a given year due to different reporting categories.
19
greater complexity and associated levels of customization associated with contracts logistics
as opposed to freight forwarding:
And the shipping industry is not doing well now. . .it is a tough place. Contract logistics industry,
you are able to add more value, because you customise, you are able to understand their
problems. You structure the deal and you structure the programme to help the customer in a
certain way. (Asian 3PL, 2017)
These characteristics lead to longer-term relationships with customers than the rapid churn
of the freight forwarding business, wherein business is very transactional and fast moving,
with a one-year arrangement generally being the longest available. In contract logistics, by
contrast, client relationships are somewhat more stable and tactical, and are usually based
around three-to-five year contracts with financial resources being committed by both par-
ties. Moreover, the nature of the work often necessitates a deeper relationship and signif-
icant data exchange between the two parties9:
I would say contract logistics business is more stable. That means once the client enters into a
contract term of three to five years, the business is there. While in freight forwarding you depend
on the market too much. . .it is more fluctuating than contract logistics. That is why the 3PLs
need the contract logistics business because it is very much more stable. . .It is guaranteed rev-
enue basically. (European 3PL, 2017)
These strategies are accompanied by efforts to increase the level of so-called value-added
service provision within contract logistics. The term generally refers to activities extending
beyond the provision of regular transport and warehousing services and their associated
support functions (Herrera and Yang, 2017). The premise here is that such activities can
improve the profit margins for 3PLs and further deepen the relationship with customers,
thereby altering the inherent power relations and making it harder for clients to ‘disentangle’
themselves and switch providers (Frisch, 2018). The simple emphasis on cost factors is
augmented by a focus on the performance of the customer’s supply chain (Wallenburg,
2009). As van Hoek (2000: 37) describes: ‘traditional services are rapidly becoming a com-
modity with low involvement from clients, low margins, and stability of relations.
Offering customization and postponement services, supplementary to existing services,
can . . .improve margins, as well as customer relations’. In this way, 3PLs can potentially
functionally upgrade and penetrate further into the core activities of a client’s business
(Coe, 2014).
There are many lists of the kinds of activities that might fit this category and extend
beyond ‘regular’ functions such as domestic transportation, international transportation,
warehousing, freight forwarding, customs brokerage, freight bill auditing and payment, and
cross-docking. Drawing, in part, upon Korn Ferry (2019), these include10:
• Product labelling, packaging, assembly, kitting

• Customization to meet local market and regulatory requirements
• Postponement (changes made to products after they are ordered)
• Reverse logistics (returns and repairs)
• Inventory management
• Order management and fulfilment
Coe 21
• Supply chain consulting services

• IT services
• Fleet management
• Service parts logistics
• Lead logistics provider/4PL services
• Customer service.
The majority of the work reported by respondents was in the first two categories. Given
the range of markets in the Asia-Pacific region, several were undertaking localization-related
kitting, labelling and packaging activities. For instance:
It’s not only the traditional logistics but a lot of printing, customization, labelling, kitting,
packing, agent booking, cellophaning, packing, set up. . .Manufacture in Asia, manufacture in
Europe, manufacture in US – we bring them here, we do value added, we do what we call
customisation. . .we will personalise the stock to ship into a country. (French 3PL, 2016)
The advantages of such work in relation to improved margins and longer-term client rela-
tions were also confirmed by respondents:
The more you go into value creation and more complex solutions, the more price-elastic in a
sense it will become because you either help save money for your customers by managing
inventories better or you help improve their end-customer experience which helps their sales.
And then it’s not as sensitive on the exact per unit price of a single pick or something, which is in
commodity business, which is so transparent. (German 3PL, 2016)
However, these assertions need to be set alongside the fact that for many firms, these were a
relatively marginal component of their overall business. This observation accords with the
findings of other studies and the wider literature. Atkacuna and Furlan (2009), Gutelius
(2016) and Gutelius and Theodore (2019), for instance, all report that overall, value-added
services make up a small component of 3PL business. Likewise, in a study of the Dutch
logistics sector, Frisch (2018) found that value-added services of the kind listed above
accounted for only 4% of national logistics revenues. A 2019 survey of over 650 3PLs
and clients, in turn, found that value-added services were used by 26% of clients or less,
depending on the specific activity, with ‘product labelling, packaging, assembly and kitting’
being the most used service, as in this study (Korn Ferry, 2019). By contrast, domestic
transportation (81%), international transportation (71%), warehousing (69%) and freight
forwarding (50%) were used by a majority of clients. Supply chain management, IT and 4PL
services were used by only around 10% of clients, resonating with the interview findings that
these knowledge services accounted for a very small proportion of revenues for all 3PL
firms. As Lambourdiere et al. (2017: 41–42) describe, ‘Shippers continue to outsource their
transactional, operational, and repetitive activities to [logistics service providers], with fewer
outsourcing strategic, IT-focused, or customer-intensive activities’.
Conclusion
This paper has sought to explore the nature, causes and consequences of commoditization in
the 3PL industry, using evidence derived from over 30 corporate interviews with the leading
global providers undertaken in the Asia-Pacific region. Commoditization was a term widely
used in the industry to describe the intensely competitive conditions that currently charac-
terize providing subcontracted 3PL services to clients. The analysis has made three argu-
ments in the context of the commoditization of logistics markets. First, it has demonstrated
that shifting client demands have been the primary driver of commoditization, combined
with increased competition from both new asset-light and e-commerce logistics providers,
and over-capacity relating to demand conditions in the global economy over the past
decade. Second, it has profiled the different strategic attempts of 3PL firms to respond to
commoditized market conditions, as seen through M&A activity, organizational restructur-
ing, asset management strategies and portfolio adjustments. These do not serve to reverse
prevailing industry conditions, which remain driven by cost-based competitive subcontract-
ing among relatively interchangeable 3PL firms, but can more effectively position firms
within relatively higher margin and more stable segments of the industry.
Third, the evidence highlights how commoditization has been both experienced and
responded to differently by different firms, reflecting the fact that the leading 3PL firms
are a highly variegated group shaped by their varied sectoral and geographical origins. More
specifically, firms may be somewhat buffered when: they are part of a larger transportation
group that allows for some cross-subsidy in difficult times; they are part of a larger multi-
industry group that provides secure and stable business from other group members (as in the
case, for instance, of Japanese and South Korean firms embedded in wider keiretsu/chaebol
structures); they are privately and/or family owned and therefore less pressured by short-
term financial reporting; and when the preponderance of their revenues are in longer-term
contract logistics deals. There is clearly a degree of path dependence, therefore, in the tra-
jectories of firms depending on their specific origins, and M&A activity will likely to con-
tinue to be the preferred route for more rapid reorientation and restructuring of the
composition of large 3PLs.
In this context, the paper makes an important contribution to understanding the dual
role of logistics providers both in facilitating client GPNs and in coordinating their own
global, subcontracted networks of logistics and transport providers. In some instances, there
is evidence of long-term strategic partnerships between 3PL and their major clients. The
dominant mode of interaction, however, is one in which the power relations are heavily in
favour of clients, and in which cost-based subcontracting for relatively standardized logis-
tical services is the dominant mode of business. In this mode, there may still be longstanding
client–3PL firm relationships across multiple contracts, but that should not be confused
with a corresponding depth to those relationships. In turn, the financial pressures placed on
3PLs have consequences for how they manage their own subcontractors within the logistics
industry, which range from large global shipping lines and air freight providers through to
myriad nationally and locally-based road haulage, delivery and warehousing providers.
These intra-logistics industry relationships are rarely studied in the existing literature, but
it seems highly likely that the pressures on financial margins are even tighter in these lower
tiers.
While the focus of this paper has been on inter-industry connections and restructuring,
the commoditization of logistics has wider implications of societal importance, most notably
in the domains of labour and environmental standards, which should be further explored.
With respect to the former, commoditization is a key driver of fragmented and often racial-
ized ‘low road’ logistics labour markets characterized by depressed wages, precarious work-
forces, low levels of collective representation, widespread use of staffing agencies and
Coe 23
intensifying labour processes associated with new monitoring technologies (e.g. Gutelius
and Theodore, 2019). In terms of the latter, the aggressive pursuit of cost savings mitigates
against interventions which seek to lessen the environmental imprint of logistics activities
(e.g. Poulsen et al., 2016). In short, there is significant scope for future research to produc-
tively link network studies of the logistics industry such as this one with the broader con-
cerns of critical logistics scholars (e.g. Chua et al., 2018).
Acknowledgements
I gratefully acknowledge the sterling research assistance of Paige Nguyen and Aidan Wong, Solee Shin
for sharing the transcripts of her interviews with South Korean logistics providers, and Tan Li Kheng
for drawing Figure 1. Thanks also to the editor, two referees and Henry Yeung for constructive and
helpful comments on earlier drafts.
Funding
The author(s) disclosed receipt of the following financial support for the research, authorship, and/or
publication of this article: This work was supported by the Global Production Networks Centre at the
National University of Singapore (GPN@NUS), NUS grant number R-109–000-183-646.
ORCID iD
Neil M Coe https://orcid.org/0000-0001-7720-5061
Notes
1. The target population for this research was derived from the Armstrong & Associates (A&A)
subscription database, from which a list of the top 50 global 3PL firms in 2015 was accessed in
mid-2016 (see also Armstrong and Associates, 2017). From that list, 13 firms were excluded based
on them having no significant presence in the Asia-Pacific region (11 of those were US-owned
firms predominantly focused on their home region). The remaining 37 were all approached for
interviews at either global HQ level (Asia-based firms) or regional HQ level (non-Asia-based
firms). Of the 37 target firms, 27 acceded to an interview – including 8 of the top 10, and 16 of
the top 20 – the vast majority of which took place in either Singapore or Hong Kong. One firm
was interviewed twice, and 5 further firms outside the 37 were interviewed, 4 of which were based
in South Korea. Interviewees typically had regional (Asia-Pacific) management or business devel-
opment responsibilities. The interviews covered five main areas: firm organizational structures in
the Asia-Pacific; client relations; supplier relations; general strategic concerns; and future chal-
lenges. The interviews lasted between 45 min and 2 h (average length 1 h), and all were tape
recorded, fully transcribed and analyzed using the standard conventions of qualitative analysis.
Three industry association events were also attended in Hong Kong over the period 2017–2019.
2. It is important to state at the outset that the Asia-Pacific market provides the empirical context for
the research presented here rather than having major analytical significance. This is for two largely
pragmatic reasons. First, the extensive secondary data analysis undertaken for this research con-
firms that geographical reporting of revenues is rare in the industry. It is thus not possible to
systematically detail Asia-Pacific revenues at the firm level as a proportion of global totals, nor are
lists of the leading providers in the region readily available. As such, the study focuses on the
activities of the leading global providers in the Asia-Pacific, which will vary in their scale and
extent. This is imperfect, and may serve to overlook Asian providers that do not ascend to the top
of the global rankings but are significant regional players. It does, however, clearly reflect the
wider challenges of studying the logistics industry. Secondly, the theme of commoditization
emerged inductively from the research, which was therefore not constructed from the outset to
compare the nature of commoditization dynamics in the Asia-Pacific with those in other regions.
This is an important theme for future research, however. Anecdotal responses from European
providers, for instance, suggested that the Asia-Pacific was a more competitive and cost-based
marketplace than their home region, where more longer-term partnership arrangements were to be
found.
3. As with revenue data, comprehensive data are not available on the Asia-Pacific proportion of
firm-level employment.
4. The balance of the two activities is also variable within individual firms, which tend to have
operations that are more extensive in their home countries/regions for obvious reasons, partic-
ularly with respect to contract logistics. Expeditors, for example, undertakes road haulage in its
home market, the USA, but is largely a freight forwarding company in the Asia-Pacific, and the
German company Dachser follows a similar pattern, largely just handling air and sea freight in the
Asia-Pacific alongside much more extensive warehousing and haulage operations in Europe. It is
often easier to build an initial international network through asset-light freight forwarding activ-
ities and then add contract logistics operations as and where customers demand them.
5. The majority of the 21 are part of transportation groups, for example DB Schenker (Deutsche
Bahn), CEVA (CMA CGM), GEODIS (SNCF), GEFCO (JSC Russian Railway), Bollore
(Bollore Group), Yusen (NYK Group) and Damco (Maersk). Others are part of postal/courier
groups, for instance DHL Supply Chain and Global Forwarding (Deutsche Post DHL), UPS
Supply Chain Solutions (UPS) and Toll (Japan Post), and some are part of broad conglomerates
extending beyond transport and logistics, such as CJ Logistics (CJ Group) and Arvato
(Bertelsmann).
6. Due to the confidentiality agreements underlying the interviews, it is not possible to give specific
examples of individual 3PL–client relationships, although some cases are often evident from the
3PL corporate websites.
7. DSV’s purchase of Panalpina, for example, combined its traditional strengths in road transport
and contract logistics in Europe with Panalpina’s strengths in air and sea freight and stronger
presence in the Americas and the Asia-Pacific. Market analysts, moreover, noted that the deal
would add 49% to DSV’s revenue and 14% to its EBIT, with the possibility that Panalpina’s
EBIT of 2% would be raised to DSV’s level of 6%–7% in two or three years due to ‘commercial
synergies, from cross-selling based on a stronger network and improved service offering, improv-
ing Panalpina’s yields, as well as cost synergies, from the consolidation of operations, adminis-
tration, facilities and the IT infrastructure’ (www.aircargonews.net, accessed 12 December 2019).
8. At the individual level, some firms are moving in the opposite direction, usually reflecting the
origins of the firm and their development strategy. For instance, as UPS Supply Chain & Freight
has developed into an integrated provider with freight forwarding capacity, its level of contract
logistics revenue has actually fallen from 100% to 70% from 2000 to 2015.
9. This general picture can be nuanced in two ways. First, freight forwarding activities are important
to maintain in order to be able to offer an integrated international service. In that sense, and as
described by a CEO at a May 2019 industry event, ocean freight may be used as a ‘loss/break-even
leader’ to attract or maintain more profitable business such as air freight and contract logistics.
Second, freight forwarding can provide a different kind of revenue stream for a 3PL firm – namely
quick, volume-based profits – and it is also important to distinguish sea from air freight as the
latter is generally more profitable.
10. Interestingly, and in line with the idea of commoditization as process, it is important to note that
what counts as a value-added service changes over time. Writing in 2009, for instance, Atkacuna
and Furlan noted that while cross-docking was once seen as a value-added service, by that point it
had already become a ‘basic’, widely available service. When asked about the distinct competitive
advantage of their firm, responding managers were hard-pressed to list services not offered by
their competitors.
Coe 25
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Competition & Change

(Manager, Japanese 3PL firm, 2016)

Third party logistics: An intersecting global production network

Figure 1. The position of 3PL firms in intersecting global production networks.

Positioning the sample firms

Table 1. The leading 3PL providers in the Asia-Pacific, 2015.

A&A 2015 2019 Operating Total

1 DHL Supply Chain & 29,562 27,302 Germany 37 188

The commoditization of logistics

Table 2. Profit and profit margins, 2000–2018.

EBIT (US$m) EBIT margin (%)

Strategic responses to commoditization

Such M&A activity allows the incorporation of complementary geographical coverage,

Management structures and customer intimacy

Asset strategies and subcontracting

Building up contract logistics and value-added services

1 DHL Supply Chain and – 72 51 47 – 28 49 53

• Product labelling, packaging, assembly, kitting

• Supply chain consulting services

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