(3Pl) Brand Recognition, Rfp Activity and Expected Profit Margins – 2018

THIRD-PARTY LOGISTICS (3PL) BRAND RECOGNITION, RFP ACTIVITY AND EXPECTED PROFIT MARGINS – 2018

January 2019

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Introduction In the third quarter of 2018, Armstrong & Associates, Inc. (A&A) surveyed 39 Third-Party Logistics (3PL) managers to complete our 2018 3PL RFP Activity and Expected Profit Margins Study (hereafter referred to as Survey A). Besides brand recognition questions, Survey A also included sections on requests for information (RFIs), requests for proposals (RFPs), direct sales activity profit margin expectations, transportation pricing arrangements, etc. In addition to Survey A, where participants were 3PL providers only, we asked 278 3PL managers, customers and others associated with the 3PL industry to identify the most recognizable brands in third-party logistics. This shorter survey, 2018 Third-Party Logistics Brand Recognition Study, is hereafter referred to as Survey B. This is the fourth brand recognition survey A&A has done. The others were done in 2002, 2007 and 2013. The surveys used in this report are in Appendices A and B. Brand Recognition Results In 2018, we received 39 surveys from 3PL managers (Survey A) and 278 responses for Survey B, therefore, received 317 surveys total. We asked the survey participants, “When you think about leading 3PL Providers, what five companies first come to mind?” and to exclude their company from the rankings. Table 1 below lists the top 20 most recognizable companies/brands in 2013 and 2018. Table 2 comprises all votes received in 2018. Once again, DHL/Exel continued to be the most recognized brand in our 2018 survey. DHL received 145 votes and 556 points total. XPO, expanded greatly by mergers and acquisitions, came in 2nd with 535 points. XPO also received a total of 164 votes (19 votes higher than DHL). However, DHL had 63 mentions for 1st place (54% higher than XPO) which made the total points higher for DHL. C.H. Robinson placed 3rd overall, but had the most 1st place votes with 69 votes. Compared to our 2013 results, the brand strength score of the top three is clustered much closer together. In 2013, the top three on the brand strength list were DHL/Exel, C.H. Robinson and UPS with brand strengths of 100%, 65% and 49%; while in 2018, the brand strengths of the top three 3PLs was 100%, 96% and 92%. UPS/Coyote came in 4th in the survey and Kuehne + Nagel came in 5th with 69% and 55% in brand strength respectively.

In addition to the top 3 on the brand recognition list, the change below, compared to the 2013 report, is worth noticing. Echo jumped from 18th to 8th in brand strength, an increase of 22%. Penske was 17th in 2013 and made 10th in 2018 resulting in a 13% increase in brand strength. GEODIS, Kenco, Panalpina, TQL, J.B. Hunt and DSV were new to the 2018 top 20 list. CEVA’s ranking dropped from 9th to 12th. Hub/ Mode/Unyson, APL and NFI dropped off the top 20 list in 2018.

Table 1. 2018 Brand Recognition Top 20 List - 2013 vs. 2018 (combined results of Surveys A & B) Brand Brand Rank 2013 3PL Total Votes *Total Points 2018 3PL Total Votes *Total Points Strength Strength 1 DHL/Exel 73 265 100% DHL/Exel 145 556 100% 2 C.H. Robinson 49 173 65% **XPO 164 535 96% 3 UPS 41 129 49% C.H. Robinson 132 512 92% 4 Ryder 40 110 42% UPS/Coyote 137 383 69% 5 Kuehne + Nagel 29 85 32% Kuehne + Nagel 97 305 55% 6 Menlo 25 76 29% Ryder 77 233 42% 7 GENCO 22 78 29% FedEx/GENCO 72 208 37% 8 Hub/Mode/Unyson 18 76 29% Echo 53 167 30% 9 CEVA 26 72 27% ***GEODIS 45 142 26% 10 OHL 21 61 23% Penske 39 120 22% 11 DB Schenker 17 41 15% DB Schenker 48 114 21% 12 FedEx 14 33 12% CEVA 45 113 20% 13 Saddle Creek 13 33 12% Transplace 31 83 15% 14 Coyote 12 31 12% Expeditors 31 78 14% 15 Expeditors 9 26 10% Kenco 23 73 13% 16 Transplace 12 25 9% Saddle Creek 23 58 10% 17 Penske 7 24 9% Panalpina 21 53 10% 18 Echo 10 22 8% TQL 18 49 9% 19 APL 8 21 8% J.B. Hunt 19 48 9% 20 NFI 5 22 8% DSV 19 45 8%

Table 2. Full Results of the Top 20 3PL Rankings (combined results of Surveys A & B) Total *Points on Brand Rank 3PL 1st Place 2nd Place 3rd Place 4th Place 5th Place Votes Votes Strength 1 DHL/Exel 145 63 31 28 10 13 556 100% 2 **XPO 164 41 41 29 26 27 535 96% 3 C.H. Robinson 132 69 21 11 19 12 512 92% 4 UPS/Coyote 137 15 34 29 26 33 383 69% 5 Kuehne + Nagel 97 14 33 18 17 15 305 55% 6 Ryder 77 16 14 18 14 15 233 42% 7 FedEx/GENCO 72 8 15 20 19 10 208 37% 8 Echo 53 4 16 20 10 3 167 30% 9 ***GEODIS 45 15 6 3 13 8 142 26% 10 Penske 39 7 11 8 4 9 120 22% 11 DB Schenker 48 3 6 11 14 14 114 21% 12 CEVA 45 4 9 7 11 14 113 20% 13 Transplace 31 2 8 5 10 6 83 15% 14 Expeditors 31 4 6 2 9 10 78 14% 15 Kenco 23 923277313% 16 Saddle Creek 23 1 3 6 10 3 58 10% 17 Panalpina 21 218555310% 18 TQL 18 1 4 4 7 2 49 9% 19 J.B. Hunt 19 31546489% 20 DSV 19 2 2 3 6 6 45 8%

*Total points on votes were calculated as follows: 1st Place = 5 Points, 2nd Place = 4 Points, 3rd Place = 3 Points, 4th Place = 2 Points, 5th Place = 1 Point **The votes for XPO include the votes for Menlo. ***The votes for GEODIS include the votes for OHL.

Table 3 lists the top 50 U.S.-based 3PLs by gross revenue. To further measure the relationship of brand recognition and gross revenue, we developed Table 4. Table 4 provides the 3PLs’ name, gross revenue rank, gross revenue and total points.

Table 3. Top 50 U.S.-based 3PLs by Gross Revenue*

Rank 3PL 2017 Gross Revenue (US$ Millions)* 1 C.H. Robinson 14,869 2 XPO Logistics 9,506 3 UPS Supply Chain Solutions 7,981 4 Expeditors 6,921 5 J.B. Hunt (JBI, DCS & ICS) 6,828 6 Kuehne + Nagel (The Americas) 5,541 7 DHL Supply Chain North America 4,390 8 Hub Group 4,035 9 Burris Logistics 3,396 10 Ryder Supply Chain Solutions 3,066 11 FedEx Trade Networks/Suppy Chain/SupplyChain Systems 3,014 12 Total Quality Logistics 2,934 13 DB Schenker (The Americas) 2,915 14 Panalpina (The Americas) 2,381 15 Coyote Logistics 2,360 16 CEVA Logistics (The Americas) 2,331 17 Schneider Logistics & Dedicated 2,330 18 Transplace 2,181 19 DSV (The Americas) 2,094 20 Transportation Insight 1,947 21 Echo Global Logistics 1,943 22 Landstar 1,940 23 NFI 1,910 24 Penske Logistics 1,700 25 Americold 1,536 26 Worldwide Express/Unishippers Global Logistics 1,400 27 BDP International 1,300 28 GEODIS North America 1,297 29 Werner Enterprises Dedicated & Logistics 1,211 30 OIA Global 1,200 31 Radial 1,082 32 APL Logistics Americas 1,040 33 Mode Transportation 1,029 34 syncreon 1,000 35 Universal Logistics Holdings 933 36 SunteckTTS 920 37 TransGroup Global Logistics 905 38 Lineage Logistics 900 39 Yusen Logistics (Americas) 855 40 GlobalTranz Enterprises 854 41 Ruan 836 42 Ingram Micro Commerce & Lifecycle Services 800 43 Cardinal Logistics Management 792 44 Nippon Express (The Americas) 790 45 Radiant Logistics 788 46 Damco (The Americas) 773 47 Neovia Logistics Services 763 48 Crane Worldwide Logistics 740 49 ArcBest 707 50 U.S. Xpress 661

*Gross revenues are company reported or Armstrong & Associates, Inc. estimates and have been converted to US$ using the average annual exchange rate in order to make non-currency related growth comparisons.

Table 4. Correlating Brand Recognition Points and Gross Revenue of the Top 20 U.S.-based 3PLs by Gross Revenue

Gross Revenue (US$ Combined Total Rank 3PL Millions) Points

1 C.H. Robinson 14,869 512

2 XPO Logistics 9,506 535

3 UPS Supply Chain Solutions 7,981 383

4 Expeditors 6,921 78

5 J.B. Hunt (JBI, DCS & ICS) 6,828 48

6 Kuehne + Nagel (The Americas) 5,541 305

7 DHL Supply Chain North America 4,390 556

8 Hub Group 4,035 39

9 Burris Logistics 3,396 4

10 Ryder Supply Chain Solutions 3,066 233

FedEx Trade Networks/Suppy 11 3,014 208 Chain/SupplyChain Systems

12 Total Quality Logistics 2,934 13

13 DB Schenker (The Americas) 2,915 114

14 Panalpina (The Americas) 2,381 53

15 Coyote Logistics 2,360 383

16 CEVA Logistics (The Americas) 2,331 113

17 Schneider Logistics & Dedicated 2,330 36

18 Transplace 2,181 83

19 DSV (The Americas) 2,094 45

20 Transportation Insight 1,947 6

The information in Table 4 can be visualized more easily through Spearman’s Rank Correlation Chart below which demonstrates the relationship between brand recognition points and gross revenue. Spearman’s Rank Correlation Coefficient is a technique which can be used to summarize the strength and direction (negative or positive) of a relationship between two variables. The Spearman’s Rank Correlation Coefficient rho for Figure 1 equals 0.507 which shows a moderate correlation between brand recognition votes and gross revenue.

Figure 1. Relationship of Gross Revenue and Combined Total Points

600 DHL Supply Chain North America XPO Logistics C.H. Robinson

500

400 Coyote Logistics UPS Supply Chain Solutions

Kuehne + Nagel (The Americas) 300 Ryder Supply Chain Solutions

FedEx Trade Networks/Suppy

Combined Total Points 200 Chain/SupplyChain Systems

CEVA Logistics (The Americas) DB Schenker (The Americas) Panalpina (The Americas) Transplace Expeditors 100 Schneider Logistics & Dedicated DSV (The Americas) Hub Group

Transportation Insight Total Quality Logistics J.B. Hunt (JBI, DCS & ICS) Burris Logistics 0 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000

Gross Revenue (US$ Millions)

Table 5 below lists other companies mentioned in the 2018 study besides the 2018 brand recognition top 20 list (Table 1 and 2). These companies obtained at least one vote. A total of 176 companies were mentioned. In 2013, 111 companies were mentioned in the survey besides the top 20 3PLs.

Table 5. Brand Name Additions (combined results of Surveys A & B)

3 Rivers Logistics Damco Logwin Logistics RJW A&R Global Logistics Dimerco Maersk Line RLS Logistics Absolute Logistics Distribution Resources Magellan Ruan AFN DLS Worldwide Manfredi Cold storage Saddleback AFS DSC Manhattan Sankyu Agility East Coast Transport, LLC Maverick Schneider All Connect Logistical England Mercury Gate Schnellecke Allen Lund Evans Distribution METRO Supply Chain Group Senko Amazon Fashion Distribution Services Midwest Warehouse Ship Bob Americold FlashGlobal Logistics MIQ Shippers Warehouse APEX Flexport Monarch FX SINOTRANS APL FM Global Neovia SkyBridge Armada Forward Air Newbreed Spartan Logistics Armstrong Transport FST Logistics Newgistics Spot ARRIVE Gebr. Weiss NFI Star Distribution ASCtrack WMS Software Givens Logistics Nihon Access States Logistics Barrett GlobalTranz Nihon Tsuun Strive Blue Grace Hansons Nippon Express Sunteck/TTS BluJay Hellmann Nolan Transport Supply Chain Solutions, Inc. BNSF Logistics High Jump North American Cold syncreon Bollore Hitachi Transport ODW TBD Bunzl Hub/Mode/Unyson Odyssey Tiong Nam Burris Hutt Old Dominion TMC California Cartage Imperial OOCL LOGISTICS TNT Capital Warehousing Ingram Micro P.T. Uniair Indotama Cargo. Toll Group Cardinal Intellitrack Park City Top Ocean Cargo partner Interstate Cold Storage Pasha Total Quality Carrier Point JAS Pentagon Transportation Impact CaseStack JDA Performance Team Transportation Insight Central American Joliet Cold storage Pilot Tri-Pak CENTURY DISTRIBUTION Kane is Able PKT Logistics Unishippers Century Total Logistics Kerry PLS United States Cold Storage ChopTank Kintesu World Express Port Logistics United Warehouse CJ KOCH LOGISTICS Premier USPS Supply Chain CMA CGM KTN Priority 1 UTS Cockerel Logistics KWL Puralator Vans Cold Logistics l&f Quad Express Veritv Columbian Logistics Network Landstar R+L Global Logistics Verst Group Command LeanCor R2 Weber Convoy LeSaint Raben Werner Crane Worldwide Logistics Lineage Radial Worldwide Express CRC Linfox Red Stag YRC CSX LKQ Redwood Yuhang Int'l Logistics (Dalian) Co. Ltd. Dachser Logistyx Rhenus Yusen

The 3PL market has seen excellent growth in the past several years. Macroeconomic trends, combined with intensifying supply chain complexity, means the demand for 3PL services is increasing. The market grew 10.5% in 2017 to $184.3 billion and is on track to exceed $200 billion in revenue in 2019. Conditions are ideal for winning new business, even as 3PL competition increases and more and more new players join the market. Figure 2 below shows the growth of 3PL gross revenue in the U.S. since 2000.

Figure 2. U.S. 3PL Market 2000-2018E (US$ Billions) $220

$199.7 $200 $184.3 $180 $166.8 $161.2 $157.8 $160 $147.0 $142.0 $140 $135.5 $127.0 $127.5 $119.0 $120 $113.6 $104.2 $107.1 $100 $89.4

$80 $75.7 $68.4 $64.2 Gross Revenue/Turnover Gross $60 $56.8

$40

$20

Year

Operational Strength by 3PL Segment We asked the survey respondents to rank 3PL operational strengths in value-added warehousing and distribution (VAWD), dedicated contract carriage (DCC), domestic transportation management/freight brokerage (DTM) and international transportation management/freight forwarding (ITM) using a scale of 1 = highest to 4 = lowest. We evaluated the strength of perceptions and ranked the companies based on the votes and average values of the 317 total samples (Surveys A & B).

Table 6 below shows that major changes were extensive by each segment. Many were caused by mergers and acquisitions (M&A). XPO bought Menlo and Jacobson, UPS acquired Coyote, and APL Logistics was sold to Kintetsu. DHL/Exel continued as the most recognized VAWD 3PL. GEODIS, XPO, Kenco, DB Schenker, Kuehne + Nagel and Penske were new on our 2018 top 10 VAWD 3PLs list. M&A activity dropped Menlo, OHL and Jacobson off the list. Ryder remained 1st for DCC. New players on our top DCC providers list include Schneider, Kenco, Werner, Landstar and ODW. Hub Group dropped off the list. In DTM, XPO replaced C.H. Robinson as No. 1 on the list. Other new names included Ryder, Penske and Schneider. Coyote and NFI dropped off the list. For ITM, DHL/Exel and UPS stayed as 1st and 2nd on the list. CEVA, Panalpina, DSV and GlobalTranz joined our top 10 ITM providers list in 2018. M&A activity dropped APL Logistics and UTi off the list.

Table 6. Top 3PLs by Operational Strength in each 3PL Segment (combined results of Surveys A & B) VAWD DCC DTM ITM 2013 2018 2013 2018 2013 2018 2013 2018 DHL/Exel DHL/Exel Ryder Ryder C.H. Robinson XPO DHL/Exel DHL/Exel CEVA GEODIS J.B. Hunt Penske UPS C.H. Robinson UPS UPS/Coyote GENCO CEVA Penske J.B. Hunt Menlo UPS/Coyote Kuehne + Nagel Expeditors Menlo XPO NFI NFI FedEx FedEx/GENCO DB Schenker Kuehne + Nagel OHL Kenco Hub Group Schneider Hub/Unyson/Mode Ryder FedEx FedEx/GENCO Saddle Creek Saddle Creek Saddle Creek Saddle Creek Transplace Echo Expeditors DB Schenker Jacobson NFI Kenco Echo Transplace APL CEVA NFI DB Schenker Werner Coyote Penske UTi Panalpina Kuehne + Nagel Landstar NFI Hub/Unyson/Mode DSV Penske ODW Schneider GlobalTranz Contract Lengths by 3PL Segment We asked 3PL companies, “Of the new business you have won this year, what are the typical contract lengths?” We combined the 317 samples from Survey A and Survey B. Figure 3 shows the average contract length by each segment. The majority of VAWD sales are direct. Contracts are normally for 3 years (42%) with 15% being 5 years, and only 1% are 10 years in length. Similarly, DCC contracts are primarily for 3 years (35%) with a minority (7%) being 5 years. Most equipment purchases/leases are 5 years which creates a dead zone for DCC 3PLs where they have to scramble. High demand has mitigated this problem for several years.

Figure 3. Contract Lengths by Segment (Surveys A & B)

ITM

DTM

DCC

VAWD

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

1 year 2 years 3 years 4 years 5 years 6-10 years 10+ years N/A

Figure 4 shows ITM has the highest compound annual growth rate (CAGR) while DCC is 4% behind compared to the other three segments in net revenue growth.

Figure 4. U.S. 3PL Market Segment Net Revenues and CAGRs 1995-2018E*

1995–2017 CAGR: 11.0%

11.3% 7.0%

(US$ Millions) 11.1%

Value-Added Warehousing & Distribution (VAWD) - Asset Based Dedicated Contract Carriage (DCC) - Asset Based International Transportation Management (ITM) - Non-Asset Based Domestic Transportation Management (DTM) - Non-Asset Based *CAGRs are from 1995-2017.

Weaknesses/Vulnerabilities of Leading 3PLs We asked for comments from the 39 3PL managers/competitors concerning the weaknesses/ vulnerabilities of the five leading 3PLs they listed. We have summarized the comments by company below.

XPO (20 comments) – The main comments were 1) too many acquisitions, 2) disjointed from fast paced acquisitions, 3) fragmented services, 4) consistency across locations, and 5) coverage in Asia. Below are some of the comments:

‐‐ “Very large, but disconnected parts – not sure if they will ever synergize to the extent that they portray they will.” ‐‐ “Fragmented service where they don’t control all aspects.” ‐‐ “Not integrated, rapidly put together, unclear strategy except growth.”

C.H. Robinson (17 comments) – The main comments were 1) too large and too rigid, 2) only one core offering and too much reliance on domestic transportation, 3) non-transportation services not strong, e.g. warehousing, and 4) depends on a cadre of small carriers. Some of the comments were:

‐‐ “Chaotic domestic network. Offices competing with each other.” ‐‐ “Most customers are a small fish in a big pond.”

DHL/Exel (13 comments) – The main comments were 1) too large, 2) lacks flexibility and agility, 3) limited domestic transportation management, and 4) only focus on big deals and not enough customization. Comments included:

‐‐ “Need to work hard on retaining existing customers.” ‐‐ “Hard to customize because of size of organization.” ‐‐ “They can only focus on big deals.”

Ryder SCS (13 comments) – Criticisms of Ryder SCS emphasized 1) weak brokerage, 2) lack of flexibility and diversity, and 3) technology. Comments included:

‐‐ “Not much in freight brokerage – that’s where the industry growth is.” ‐‐ “Too narrow: dedicated warehousing and rent trucks only.” ‐‐ “Not sure they have kept up with the pace of technology change in DTM.”

Kuehne + Nagel (10 comments) – The main responses were 1) international focus, 2) culture barrier, and 3) freight management.

UPS/Coyote (9 comments) – Responses about UPS SCS were primarily 1) lack of flexibility and 2) lack of diversity of offering. Here are some examples:

‐‐ “Not nimble. Big bureaucracy to fix problems.” ‐‐ “TL brokerage is the only focus.” ‐‐ “Employee culture and size.”

Echo (7 comments) – Comments on Echo emphasized 1) limited offering and minimal value-add service and 2) LTL weakness. Examples include:

‐‐ “Weak transportation outsourced program. LTL weakness. No international.” ‐‐ “Too much turnover; too much reliance on domestic transportation.” ‐‐ “Too focused on just reselling LTL, minimal value-add.”

Transplace (6 comments) – The comments about Transplace were diffuse. Criticisms can be summarized as 1) lack of assets and 2) not leveraging spend well. Some comments are:

‐‐ “Mediocre tech, brokerage oriented.” ‐‐ “Not well understood – more of a bid administrator.” ‐‐ “Seems all over the board on strategy, particularly in acquisitions.”

CEVA (5 comments) – The comments about CEVA were diffuse. One specific item was “Financial strength” and another was “Customer Service.”

FedEx/GENCO (5 comments) – The comments about FedEx/GENCO were diffuse. Criticisms were mostly on its warehousing services. Here are some examples:

‐‐ “Lost edge in warehousing.” ‐‐ “Force fits customer’s supply chain to match their assets.”

Schneider (4 comments) – The criticisms of Schneider were specific and included:

‐‐ “Integration with asset side of company.” ‐‐ “More focused on assets rather than strategic solutions.” ‐‐ “Too much focus on automotive and only TL aspects of supply chain.”

DB Schenker (3 comments) – The comments about DB Schenker emphasized the lack of flexibility and included:

‐‐ “Too bureaucratic.” ‐‐ “Struggle since the BAX Global acquisition in America.”

GEODIS (3 comments) – The comments about GEODIS focused on its network and system such as:

‐‐ “Disjointed systems.” ‐‐ “Ne t wo r k .” ‐‐ “Lack of flexibility, nimbleness.”

GlobalTranz (3 comments) – The comments about GlobalTranz were diffuse. Below are the comments:

‐‐ “Agent based model. Weak on transportation outsourcing. No international.” ‐‐ “Domestic truckload, not equipped.” ‐‐ “Overly confident.”

Hub/Mode/Unyson (3 comments) – Here are a couple of the comments:

‐‐ “Loyalty to customers.” ‐‐ “Agent model

Parent Company’s Reputation Contribution We asked the Survey A respondents how much each company in question 1 is helped by its parent company’s reputation using a scale of 1 = greatly helped to 5 = not helped. We selected those companies with votes higher than three and then ranked them based on the average points and votes.

Table 7 below lists the companies with more than three votes. The company that is most helped by its parent company’s reputation is XPO, followed by C.H. Robinson and Kuehne + Nagel.

Below are some of the comments:

‐‐ “3PLs/logistics providers are often the “red-headed step child” of larger organizations, and are expected to drive revenue to the parent company, not the other way around.” ‐‐ “All have great brands built through customer performance.”

Table 7. 3PLs Helped by Parent Company’s Reputation (1 = greatly helped to 5 = not helped) 3PL Votes Average Points XPO 18 1.7 C.H. Robinson 16 1.9 Kuehne + Nagel 9 2.0 CEVA 4 2.0 Hub/Mode/Unyson 3 2.0 Ryder 12 2.2 Schneider 4 2.3 UPS/Coyote 9 2.3 DB Schenker 3 2.3 JB Hunt 3 2.3 DHL/Exel 11 2.4 FedEx/GENCO 5 2.6 GEODIS 3 2.7 Echo 7 2.9 GlobalTranz 3 3.3

Sales & Marketing Functions We asked the Survey A respondents to name the top 5 3PLs that have the strongest sales and marketing functions. Table 8 below compares the 2018 top 20 3PLs with the strongest sales and marketing functions with the 2013 list. C.H. Robinson held its 1st place spot since our 2013 survey, as the 3PL with the strongest sales and marketing functions. XPO replaced UPS as 2nd in 2018 compared to Menlo as 10th in 2013 helped by its acquisition of Menlo. DHL/Exel remained in 3rd place. Nine companies made their way to the top 20 in sales and marketing functions. They are Kuehne + Nagel, NFI, DB Schenker, Schneider, GlobalTranz, BlueGrace, GEODIS, CEVA and BluJay. Transplace, Penske, Landstar, Jacobson (acquired by XPO), Hub/Mode/Unyson and Access America Transport (merged with Coyote) fell off top 20 list.

Table 8. Top 20 Strongest 3PLs in Sales & Marketing Functions – 2013 vs. 2018

Ranking 2013 3PL Total Votes Total Points 2018 3PL Total Votes Total Points 1 C.H. Robinson 18 56 C.H. Robinson 19 77 2 UPS SCS 14 54 XPO 18 73 3 DHL/Exel 12 41 DHL/Exel 13 47 4 Ryder SCS 13 38 UPS/Coyote 18 46 5 FedEx 6 20 Ryder 12 31 6 Saddle Creek 4 18 FedEx/GENCO 8 22 7 Coyote 4 16 Echo 7 21 8 Echo 6 14 TQL 6 20 9 GENCO 6 13 Kuehne + Nagel 5 18 10 Menlo 4 10 Expeditors 5 16 11 Expeditors 2 10 J.B. Hunt 5 15 12 OHL 3 9 NFI 3 13 13 Transplace 3 9 DB Schenker 4 8 14 J.B. Hunt 4 7 Schneider 3 7 15 TQL 4 7 GlobalTranz 2 7 16 Penske 3 7 Saddle Creek 3 6 17 Landstar 2 6 BlueGrace 2 6 18 Jacobson 2 5 GEODIS 3 5 19 Access America Transport 1 5 CEVA 2 5 20 Hub/Mode/Unyson 1 5 BluJay 1 5

Eighty-five percent (17) of the 2018 top 20 companies with the strongest sales and marketing functions can be found in Table 3 (Top 50 U.S.-based 3PLs by Gross Revenue) and 75% (15) can be found in

Table 1 (2018 Brand Recognition Top 20 List). Another interesting finding is that six of the first seven 3PLs (except DHL/Exel) with strongest sales and marketing functions can also be found in Table 6 (Top 3PLs by Operational Strengths in each 3PL Segment) for DTM which further proves that domestic transportation managers tend to be sales heavy organizations. Compared to DTM, DCC operators are being identified with their parent trucking companies and are less identified as 3PLs by our respondents. Table 9 shows 60% of the top 10 DCC operators, by number of power units, were not on the top 20 3PLs with strongest sales and marketing functions list and 40% were not mentioned at all for having the strongest sales and marketing functions in our survey.

Table 9. Top 10 Dedicated Contract Carriers by 2017 Power Units* Top 20 3PLs with the strongest Survey A Sample Mention? 3PL DCC Power Units Sales & Marketing Mention? (Yes/No) (Yes/No) J.B. Hunt 8,727 Yes Yes Ryder 6,000 Yes Yes Werner 4,000 No No Schneider 3,930 Yes Yes Penske 3,734 No Yes Ruan 3,524 No No NFI 3,300 Yes Yes Knight-Swift Transportation 3,089 No No Cardinal Logistics Management 3,022 No Yes U.S. Xpress 2,440 No No

*DCC power units are company reported or Armstrong & Associates, Inc. estimates. *DCC power units are company reported or Armstrong & Associates, Inc. estimates.

Customers’ Procurement/Purchasing Department Personnel Involvement in the 3PL Request for Information (RFI)/Request for Proposal (RFP) Process In 1985, when we were involved in our first 3PL outsourcing project, BorgWarner used an M&A advisor to assist its transportation personnel in outsourcing its private fleets. For the next decade, the pattern was for smaller companies to allow the process to be handled by the transportation people with corporate offices providing final approval. Larger companies increasingly provided purchasing/ procurement advisors to outsourcing teams. By 1995, the teams were commonly led by purchasing/ procurement personnel. Transportation and supply chain personnel were requestors and advisors.

We asked the Survey A respondents, “How often are customers’ procurement/purchasing department personnel involved in their 3PL RFI/RFP process?” There has been more expansion of procurement/ purchasing department involvement in the RFI/RFP process compared to our 2013 survey. There were a variety of answers ranging from very rarely to 100% involvement. Nine (23%) companies mentioned 100% involvement of customer’s procurement/purchasing department in the RFI/RFP process compared to 21% in 2013. The mean was 64% and the median was 80%. In 2013, the mean was 64% and the median was 65%.

Figure 5. 3PL Customers’ Procurement/Purchasing Department Involvement in 3PL Request for Information (RFI)/Request for Proposal (RFP) Process

5% 21%

49%

15%

10%

76-100% 51%-75% 26%-50% 0-25% Not sure

Here are some sample responses:

‐‐ “Almost all of the time at some level.” ‐‐ “Customers are usually involved from start to finish.” ‐‐ “Quite often, but varies with the magnitude of the bid.” ‐‐ “Each company is different depending on its model.” ‐‐ “The larger the company, the more likely they have procurement involved.”

We also asked about the extent of customers’ purchasing/procurement department involvement in RFIs/ RFPs by 3PL segment. Figure 6 below shows that the involvement in each segment is very similar.

Figure 6. 3PL Customers’ Procurement/Purchasing Department Involvement in RFIs/RFPs by 3PL Segment

ITM 31% 10% 15% 15% 28%

DTM 38% 13% 15% 15% 18%

DCC 38% 18% 8% 13% 23%

VAWD 33% 21% 8% 18% 21%

76-100% of RFIs/RFPs 51-75% of RFIs/RFPs 26-50% of RFIs/RFPs 0-25% of RFIs/RFPs N/A

Here are some sample responses:

‐‐ “The more transactional the activity, the less formal bid processes may apply.” ‐‐ “The larger the customer, the more likely there’s a procurement team involved in the RFP.” RFI/RFP/Direct Sales Activity Requests for Information (RFIs) are often sent by prospective customers to 3PLs. Once the team has analyzed the results, they may proceed with a Request for Proposal (RFP). 3PLs are often selective about the RFIs and RFPs they respond to. Here are our results:

We saw wide differences between 3PLs in their proposal and direct sales activities. Several companies responded to more than 1,000 RFIs. The average number of RFIs received was 219 which was more than the 172 received in our 2013 survey. The average number of RFPs received was 250. The average response rate for RFIs and RFPs was 52% and 53% respectively. Respondents pursued 53% of RFPs strongly compared to 49% in 2013. An average of 42% of RFPs responded to led to contracts while this number in 2013 was 51%. An average of 72% of contracts that were up for renewal were renewed. This number in 2007 and 2013 was 92% and 89% respectively.

Figure 7. Method Used in 3PL Sales

100% 8% 8% 10% 90% 10% 80% 28% 70% 56% 31% 60% 50% 33% 40% 21% 30% 21% 20% 21% 28% 10% 10% 10% 0% 5% RFP process – new account RFP process – expansion of an existing Direct sales where there was a account proposal by your company but not an RFP process

76-100% 51-75% 26-50% 0-25% N/A

The comments about new patterns and changes in the RFI/RFP process are diffuse. Here are some comments:

‐‐ “Seems to be a move to a more integrated approach and more acceptable to leveraging our assets as part of the solution.” ‐‐ “More bidders initially. Very technical, 100+ question RFIs becoming commonplace.” ‐‐ “More in depth and technology oriented.” ‐‐ “More technology and business intelligence components.” ‐‐ “Outsourced, poor data, PMP approach.”

‐‐ “Difficult to differentiate the price shoppers from customers that have a real reason to change. More transparent pricing.” ‐‐ “We saw contracted rates and typically RFP practices avoided this year. More spot quotes than ever before.” ‐‐ “Process is increasingly procurement driven.” ‐‐ “As we see the market shift, the RFP process has transitioned to fewer RFPs and more towards strategic initiatives with providers to combat market conditions.” ‐‐ “The need for big data, more complex and specific information is required by 3PLs.” ‐‐ “As the market turns more towards the carriers, in DTM, CFOs in particular are more inclined to support the efforts of 3PLs to control cost and identify efficiencies in their supply chain. RFPs are becoming more of a thing of the past.” ‐‐ “Trust/relationships are taking a front seat as more carriers and 3PLs back out of their agreements.” ‐‐ “If we must answer a detailed RFP/RFI, we at least want a two-year commitment from the potential client.” ‐‐ “Continue to have RFP/RFI processes largely be tied to a price check vs. a true opportunity.” ‐‐ “Our sell is 90% fully managed where we are chosen to lead an RFP but rarely do prospects ask us to participate in an RFP for a 3PL. They chose to go with us without an RFP or RFI.” ‐‐ “Not seeing that much RFI activity – most customers are familiar with the market and the leading providers.” ‐‐ “They are too commercialized to the point where respondents are not able to understand and provide REAL value.” 3PL Managers - Basic Information, EBITDA & EBIT The 39 3PL managers who participated in Survey A varied in size from 20 to 146,000 employees. Net revenues in North America varied from $1.9 million to $6 billion. Earnings before interest, tax, depreciation and amortization (EBITDAs) ranged from 1.6% to 100% of net revenues in North America. The average EBITDA was 28%. Earnings before interest and taxes (EBITs) varied from 1.5% to 60% of net revenues in North America with the average EBIT being 10%. In 2013, the average EBITDA was 17% and EBIT was 14%. Transportation Management Compensation When we asked about how 3PLs were compensated for transportation management, once again, we got a wide range of responses. Figure 8 compares the results of 2018 and 2013. Several changes were very obvious compared to the 2013 results: 14% more respondents agreed that there’s a greater percentage of freight under management/transportation spend compensation agreements; 9% more agreed that extra services are priced separately; 23% less agreed that they use a fixed charge/fee per transaction; 17% less agreed that their transportation management pricing is a percentage of amount saved.

Figure 8. Types of 3PL Transportation Management Compensation – 2013 vs. 2018

70% Extra services are priced separately. 79%

33% Customer only uses our software and reporting. 26%

30% Percentage of the freight under management/transportation spend 44%

87% FIxed charge/fee per transaction 64%

Buy/Sell - Our margin is the spread between what the shipper pays and what we 83% pay the carrier. 85%

50% Percentage of amount saved 33%

73% Cost plus 67%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

2013 2018

One of the responses was:

“We offer an assisted model where we provide the back office infrastructure and optimization and the customer does the day to day transactional work.” Carrier Payment We asked 3PLs, who pays the carrier (3PL, customer or some of both)? Again, in Figure 9, we compared the results of 2013 and 2018. In 2018, 59% of 3PLs paid the carriers directly (a 22% increase compared to 2013).

Figure 9. Payment Method – 2013 vs. 2018 70% 59% 60% 60%

50% 38% 40% 37%

30%

20%

10% 3% 3% 0% We do Customer Some of both

2013 2018

Expected Operating Margins We asked 3PLs about current target operating profit margin percentages by business segment. Table 10 compares the results of 2013 and 2018.

Table 10. Expected Operating Margins 2013 2018 Function Mean Mode Range Mean Mode Range

Domestic transportation systems management complete service 8.3% 5.0% 3-15% 13.8% 15.0% 5-20%

Systems and reporting transportation management 17.5% N/A 15-20% 16.5% 10.0% 5-50%

Domestic transactional brokered shipment management 14.1% 15.0% 6-20% 13.0% 15.0% 2-20%

International systems transportation management 13.3% 12.0% 10-17% 14.6% 15.0% 2-30%

Freight forwarder 17.4% 18.0% 10-30% 15.3% 12.0% 5-30%

NVOCC 15.0% N/A 10-20% 15.4% 20.0% 5-35%

Supply chain/network management (transportation, inventory 18.5% 20.0% 8.5-25% 15.2% 15.0% 5-30% management, vendor management)

Distribution center management (includes distribution/transportation 15.3% 15.0% 8.5-30% 15.2% 15.0% 8-25% management, call center, etc.)

Value-added warehousing with light assembly, inventory, etc. 16.0% 20.0% 8.5-20% 17.0% 15.0% 10-25%

Return logistics 16.2% 15.0% 8.5-22% 13.7% 15.0% 5-25%

Dedicated contract carriage 12.3% 15.0% 8-20% 13.3% 15.0% 5-25%

Gainsharing

We framed the question of gainsharing as follows: Our experience indicates that “gainsharing” has not, in general, worked well. The exception is in transportation management where benchmark (pre-3PL) rates/prices are compared to 3PL contracted transportation rates/prices and the savings are split. We think that now more customers are doing a better job of keeping good baseline, KPI-type data. However, we do not think gainsharing, for most accounts, works. Do you agree?

The result in 2018 is far more different than 2013. In 2018, 29 (80%) 3PLs agreed with us, 5 (14%) disagreed, and 2 (6%) said yes and no. In 2013, “yes” responses counted for 52%, “no” was 41%, and “yes and no” was 7%. Here are some of the comments:

‐‐ “Depending on relationship – increasingly competitive freight market causes this solution to be viewed as a riskier option by many 3PLs.”

‐‐ “Even in transportation management, gainsharing agreements tend to die off after year 1 due to both network changes and the re-set of baseline values. In my experience, they rarely last past the “1st check.” Lately, due to the large increases in transportation spend, it’s now more about trying to hold the line.” ‐‐ “Yes, Gainsharing has proven to be a strong pillar in the foundation of many of our strategic relationships.” ‐‐ “Yes. Gainsharing is a joke. Heads I win. Tails you lose.” ‐‐ “While we have mixed results, we have successful gainshare agreements.” ‐‐ “We have two customers with gainsharing and it has worked well so far. At some point, however, the low hanging fruit is gone and engineering has to be deployed to root out additional cost savings.”

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Appendix C We received 39 responses to more in-depth Survey A and 278 responses to Survey B. Survey A was applicable to third-party logistics providers only. For Survey B, the majority, 69.4%, were third-party logistics providers, 7.9% were customers of 3PLs, and 22.7% were “others” which includes those in consulting, financial, real estate, recruitment, private equity, investment banking, marketing and research, IT, transportation, government, and education. For brevity, we refer to 3PLs by shortened versions of their formal names. The list below contains a key with shortened and full company names for 3PLs named in our top lists herein.

3PL Abbreviated Name 3PL Full Name APL APL Logistics BlueGrace BlueGrace Logistics BluJay BluJay Solutions Burris Logistics Burris Logistics C.H. Robinson C.H. Robinson Cardinal Logistics Management Cardinal Logistics Management CEVA CEVA Logistics DB Schenker DB Schenker DHL/Exel DHL Supply Chain & Global Forwarding/Exel DSV DSV Echo Echo Global Logistics Expeditors Expeditors FedEx/GENCO FedEx Trade Networks/Supply Chain/Supply Chain Systems/GENCO GEODIS GEODIS GlobalTranz GlobalTranz J.B. Hunt J.B. Hunt (JBI, DCS & ICS) Jacobson Jacobson Companies Kenco Kenco Logistic Services Knight-Swift Transportation Knight-Swift Transportation Kuehne + Nagel Kuehne + Nagel Landstar Landstar System Menlo Menlo Worldwide Logistics NFI NFI ODW ODW Logistics OHL OHL Logistics Panalpina Panalpina Penske Penske Logistics Ruan Ruan Transportation Management Systems Ryder Ryder Supply Chain Solutions Saddle Creek Saddle Creek Logistics Services TQL Total Quality Logistics Transplace Transplace U.S. Xpress U.S. Xpress Enterprises UPS/Coyote UPS Supply Chain Solutions/Coyote UTi UTi Worldwide Werner Werner Enterprises XPO XPO Logistics

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