3PL Market Update – January 2025

3PL Market M&A Activity Showing Signs of Life, but Waiting on Sustained Improvement in Freight Volumes  

Third-Party Logistics (3PL) sector sentiment has remained subdued with freight headwinds weighing on revenues, profits, and merger and acquisition (M&A) activity since mid-2022. However, green shoots in freight volumes and pricing have emerged, with high frequency indicators, including steady growth in U.S. tender rejection rates, showing an improvement in Freight market conditions since September (Q4 average rate up 32.6% quarter-over-quarter), according to FreightWaves.¹ The weak freight market conditions continued to weigh on M&A activity, with 2024 3PL M&A volume down 13.4% from 2022. Despite a weak Freight market environment, transaction activity began to accelerate in the second half of 2024, driven by shareholder pressure at public companies to shed underperforming segments; strong strategic interest in the sector and in platforms insulated from the broader freight cycle; and distressed digital platforms selling or realigning operations. Looking into 2025, optimism for improved transaction activity is building. Easing interest rates, strong financial markets and knock-on effects to consumer spending and industrial activity will likely drive increasing freight volumes and support more broad-based 3PL M&A transaction activity in the coming quarters. 

The freight recession has lasted longer than expected, and M&A transaction volumes have disappointed as a result. Buyer appetite (strategic and financial) has remained mostly healthy, but it has been difficult getting sellers to the table, many with profits down materially from 2021/2022. The backlog of sellers at higher profitability levels is strong. When improved freight market dynamics start translating into improved profitability, deal activity will pick up markedly.

Gordon MackayManaging Director, Capstone Partners

Sector Sentiment Remains Cautious, Freight Market Recovery Hinges on Rising End-Demand  

Forecasts for a Freight market recovery have been pushed-out continuously since 2023, as underlying freight demand has continued to disappoint, particularly as industrial freight has not grown. Generating the bulk of domestic, over-the-road freight demand, 27% of carriers believe that an acceleration in industrial activity from manufacturers will help right-size capacity in the first half of 2025, according to a FreightWaves October Survey.² Furthermore, excess freight capacity has not exited as quickly as hoped. “We are continuing to see capacity exit, but…it's not exiting at the rate that's creating an inflection in the marketplace…you need a demand inflection to truly get the market to repair,” noted Michael Castagnetto, C.H. Robinson’s (Nasdaq:CHRW) North American Surface Transportation President, in the company’s Q3 earnings call.³ However, fourth quarter 2024 showed some improvement in freight conditions as retailers and manufacturers have attempted to restock inventories and accelerate imports ahead of potential tariff increases. Of note, some important parts of the Freight ecosystem have continued to show consistent improvements. Healthy increases to consumer e-commerce spending and growing U.S. and Mexico cross-border trade have been important drivers of sector growth. While sector participants are expected to continue employing a cautious near-term outlook, these tailwinds are expected to continue supporting sector growth in the long-term.     

Long-Term Tailwinds Buoy M&A in 3PL Market  

In 2024, 3PL M&A activity increased 23.4% year-over-year (YOY), buoyed by strong strategic interest in the sector and participants efforts to realign operations amid a down market. While an improvement, deal volumes have remained subdued since the freight recession began, with deal volumes between 2023 and 2024 down 21.6% compared to the same time period between 2021 and 2022. Public strategic deal activity remained stable YOY, primarily consisting of transactions that focus operations around profitable and core services. These portfolio realignment transactions have been supported by strong public shareholder dynamics that have focused on generating operational and financial performance improvements amid the ongoing freight recession. Of note, UPS (NYSE:UPS) divested its subsidiary, Coyote Logistics, after the unit accounted for one-third of the $3 billion in YOY revenue losses within UPS’ Forwarding division in fiscal year (FY)2023, according to UPS’ analyst day earnings call.⁴ Since finalizing the sale, UPS has seen revenue and profit growth return after 18 months of deceleration and cited the divestment as key to their newly improved fourth quarter operating margin outlook, according to UPS’ Q3 2024 earnings release.⁵ Private strategic deal activity picked up in 2024, rising 23.5% YOY. Whereas public players have pursued M&A to reorganize operations around core services, private strategic buyers have acquired to grow scale, geography, and customers in preparation for an eventual market recovery. The ongoing freight recession has fostered a buyer’s market within the 3PL sector, providing acquirers with opportunities to scoop-up underperforming regional operators with a need to consolidate. "It's easier to transact off of the trailing 12-month type numbers that we're seeing now…So, the numbers have settled down where everybody can feel more comfortable about transacting…I think there's just not as many folks right now [with balance sheets]…in a position to lean into the opportunity the way that we are," noted Radiant Logistics (NYSE:RLGT) CEO, Bohn H. Crain, in the company’s Q4 earnings call.⁶  

Interest rate reductions have also helped fuel increased 3PL M&A activity, enabling financial sponsors to fund acquisitions through cheaper debt capital. This largely materialized in heightened add-on acquisition activity, which doubled YOY from ten deals in 2023 to 20 in 2024. In addition to long-term growth drivers, financial buyers have been attracted to the sector’s asset-light operating model and highly fragmented market as private equity groups look to acquire or bolster platform investments with added scale, operational capabilities, and end market diversity. Of note, Littlejohn & Co-backed Imperative Logistics Group acquired cross-border logistics freight forwarding operator, JAMCO International, for an undisclosed sum (October 2024). Imperative Logistics group cited growing cross-border trade between the U.S. and Mexico as motivation for the deal and represents its third roll-up since Littlejohn’s platform investment (January 2022), including Quality Air Forwarding (March 2024, undisclosed) and Cargo Logistics Group (June 2023, undisclosed). “JAMCO will significantly enhance our service offering by adding highly differentiated and integrated cross-border trade and logistics services. We’ll be better positioned to support existing customers who manufacture in Mexico while providing JAMCO clients with our expedited mission-critical shipping and global forwarding capabilities,” noted Imperative Logistics CEO, Dante Fornari, in an October press release.⁷ Tailwinds driving long-term growth and improved financing conditions will likely continue to accelerate deal activity in both the near- and long-term, particularly as Freight market conditions continue to improve and margin pressures subside.      

Portfolio Optimization Underpins Public Strategic Activity 

Portfolio optimization strategies have become increasingly pertinent among public players in the sector as participants struggle to manage the revenue impacts of low freight rates. As a result, 2024 public strategic M&A activity within the Logistics ecosystem was characterized by a handful of highly-publicized deals, a trend that started in late 2023 as sector pressures began to intensify. Portfolio realignment strategies have helped public players manage shareholder growth expectations by aligning operations around profitable core services. Heightened public company acquisitions and divestments have illustrated the continued importance of inorganic strategies in the space, especially as participants navigate the fallout of more than two years of poor Freight market conditions. Notable portfolio optimization transactions in the 3PL market are outlined below. 

• Hilco Global Acquires Pitney Bowes’ Global Ecommerce Segment (August 2024, Undisclosed) – In August, global shipping and mailing company, Pitney Bowes (NYSE:PBI), divested it’s Global Ecommerce (GEC) segment to Hilco Commercial Industrial, an affiliate of Hilco Global, for an undisclosed sum. Pitney Bowes cited profitability struggles in the face of macroeconomic and industry headwinds as the reason for the sale as it aims to counteract $136 million in losses associated with GEC in FY 2023, according to a press release.⁸ Hilco Global plans to liquidate certain GEC assets as part of the segment’s chapter 11 bankruptcy proceedings. The transaction follows Pitney Bowes’ divestment of its E-Commerce Fulfillment unit to Stord in July (undisclosed) after identifying the need to trim costs amid ongoing margin pressure. The deal expands Stord’s existing portfolio of fulfillment centers and network coverage and builds on its earlier acquisition of ProPack Logistics (April 2024, undisclosed), as detailed in Capstone’s interview with ProPack Logistics founder, Alex Snyder.  

• Sennder Technologies Acquires C.H. Robinson’s European Surface Transportation Business (July 2024, Undisclosed) – In July, global freight provider, C.H. Robinson, divested it’s European Surface Transportation Business unit to German-based digital freight forwarding provider Sennder Technologies for an undisclosed sum. For Sennder, the acquisition will create a combined unit and one of the largest full-truckload (FTL) operators in Europe with a combined revenue of ~$1.5 billion, 1,700 employees, and a footprint with more than 20 locations, according to a press release.⁹ C.H. Robinson divested the European unit as part of its efforts to get “fit, fast, and focused” and drive profitable growth within its four core segments: North American Truckload, North American Less-Than-Truckload (LTL), Global Ocean, and Global Air, according to a press release.¹⁰ “To win, we need to focus on what sets us apart and build upon our competitive advantages…Europe remains an important strategic market for us, and we are committed to our global forwarding and managed services presence there. This clarity of investment in the region is important for the long-term success of our business and employees as well as the value and impact we can offer our customers and carriers,” noted C.H. Robinson president and CEO, Dave Bozeman, in the press release.  

UPS Divests Coyote Logistics, Creating Third-Largest Brokerage After RXO Acquisition 

Sector dynamics have continued to shift amid sector-wide revenue pressure resulting from the ongoing freight recession as participants realign portfolio operations to manage shareholder expectations and bolster scale in preparation for an eventual turnaround in freight demand. Notably, United Parcel Service divested its truckload brokerage business, Coyote Logistics, to 3PL and broker RXO Logistics (NYSE:RXO) for $1 billion, or 0.3x EV/Revenue and 11.9x EV/EBITDA (June). UPS announced plans to sell Coyote in January, citing the unit’s cyclical earnings volatility as key divestment rationale. The divestment reflects UPS’ efforts to reorganize its business in line with its “better, not bigger” strategy centered around its core operations of small package parcel services. As part of this strategy, UPS outlined a pipeline with up to $6 billion in inorganic revenue opportunities focused on driving growth internationally and within its Healthcare Logistics unit as well as expanding addressable markets through digital solutions, according to the analyst day earnings call. To date, UPS has selectively pursued this strategic inorganic growth through the announced acquisitions of Mexican express delivery provider Estafeta (July 2024, undisclosed) and German cold chain provider Frigo-Trans and its sister company B.P.L. (September 2024, undisclosed).  

RXO pursued the acquisition as an opportunity to become a 3PL market leader, with newly combined operations making it the third-largest freight brokerage provider in North America, according to a transcript from RXO’s acquisition announcement.¹¹ With RXO ranked 8th and Coyote ranked 5th prior to the deal, the rise in market share at the combined entity has been underpinned by the significant scale benefits from the Coyote acquisition, according to an investor presentation related to the deal.¹² In 2023, Coyote generated $3.2 billion in revenue with ~15,000 customers and ~97,000 network carriers. Based on these figures, the acquisition is expected to increase RXO’s customer base by ~3.8x and nearly double its annual revenue and carrier network. In addition, the acquisition of Coyote has expanded and diversified RXO’s end markets, customer portfolio, carrier network, and freight capacity, enabling the company to provide enhanced cross-border and LTL freight services. With long-term tailwinds driving increased e-commerce shipments and cross-border trade, the deal has well-positioned RXO to further scale the business as part of its inorganic growth strategy. “While there have been mergers and acquisitions in the Brokerage market, we believe that in the next few years, there will be an increase in consolidation and the winners will be companies like RXO, who offer the deepest customer relationships, the best technology and a strong financial profile,” noted Andrew Wilkerson, RXO CEO, in the acquisition announcement call.  

While near-term headwinds to the 3PL market persist, long-term sector growth outlook has remained positive, fueled by healthy growth in e-commerce spending and cross-border trade. These long-term tailwinds, coupled with sector participants recent efforts to realign operations and divest underperforming assets, are projected to continue supporting 3PL M&A activity, particularly as sector participants aim to kickstart growth in the fallout of an historically long freight recession.  

To discuss sector volatility and sentiment, provide an update on your business, or learn about Capstone's wide range of advisory services and 3PL market knowledge, please contact us. 

Izzy Jack, Associate, was the lead Market Intelligence contributor to this article. 

Endnotes

1. FreightWaves, “The Home Stretch: Volumes Ease, Spot Rates Retreat as Year-End Impacts Yet to Arrive,” https://www.freightwaves.com/news/the-home-stretch-volumes-ease-spot-rates-retreat-as-year-end-impacts-yet-to-arrive, accessed December 17, 2024.  

2. FreightWaves, “Q4 2024 Carrier Rate Report,” https://www.freightwaves.com/uploads/2024/11/26/Q4-2024-Carrier-Rate-Report-1.pdf, accessed December 17, 2024.  

3. C.H. Robinson, “C.H. Robinson Q3 2024 Earnings Conference Call,” https://events.q4inc.com/attendee/990710108, accessed November 19, 2024. 

4. UPS, “Better and Bolder: UPS Investor & Analyst Day,” https://ups-investor-day-2024.open-exchange.net/registration, accessed December 17, 2024. 

5. UPS, “UPS Release 3Q 2024 Earnings,” https://investors.ups.com/news-events/press-releases/detail/2131/ups-releases-3q-2024-earnings, accessed December 17, 2024. 

6. Seeking Alpha, “Radiant Logistics, Inc. (RLGT) Q4 2024 Earnings Call Transcript,” https://seekingalpha.com/article/4720827-radiant-logistics-inc-rlgt-q4-2024-earnings-call-transcript, accessed November 19, 2024.  

7. PR Newswire, “Imperative Logistics Group Acquires JAMCO, Adding Specialized Cross Broder U.S. – Mexico and International Trade Compliance Services,” https://www.prnewswire.com/news-releases/imperative-logistics-group-acquires-jamco-adding-specialized-cross-border-us---mexico--and-international-trade-compliance-services-302271874.html, accessed December 2, 2024.  

8. Pitney Bowes, “Pitney Bowes Announces Value-Maximizing Exit Path for Global Ecommerce Segment,” https://www.investorrelations.pitneybowes.com/news-releases/news-release-details/pitney-bowes-announces-value-maximizing-exit-path-global, accessed December 2, 2024.  

9. Sennder, “Sennder Signs Agreement to Acquire C.H. Robinson’s European Surface Transportation Operations, Combining Revenue to EUR 1.4bn,” https://www.sennder.com/press/sennder-signs-agreement-to-acquire-c-h-robinson-s-european-surface-transportation-operations-combining-revenue-to-eur-1-4bn, accessed December 2, 2024.  

10. C.H. Robinson, “C.H. Robinson Announces Agreement to Sell its European Surface Transportation Business to sennder Technologies GmbH,” https://www.chrobinson.com/en-us/newsroom/press-releases/2024/press-release-7-30-24/, accessed December 2, 2024.  

11. RXO, “RXO Investor Update,” https://events.q4inc.com/attendee/245053877, accessed November 19, 2024.  

12. RXO, “RXO to Acquire Coyote Logistics,” https://s201.q4cdn.com/733042408/files/doc_events/2024/Jun/24/rxo-to-acquire-coyote-logistics2.pdf, accessed November 19, 2024.