Private Equity Continues to Show Interest in Logistics
Private equity firms have shown an increased appetite in the transportation and logistics industry over the past few years. Starting with the COVID-19 pandemic, private equity has become more of a major player in the space.
The interest has always been there to some degree, but the pandemic highlighted the untapped profit potential to more investors. Possibly for the first time, logistics was fully in the public eye as more and more people flocked to e-commerce. As deliveries were delayed due to staff shortages, lack of inventory, and shipping delays, the importance of an efficient supply chain was more prominent than ever before.
Private equity firms saw this opportunity to invest and haven’t slowed down since. Since the pandemic, we’ve seen large investments from groups like Blackstone, Equistone, Alpine Investors, and HIG Capital into various third-party logistics (3PL) providers.
Why are investors interested in supply chain and logistics?
Simply put, there is plenty of money to be made by investing in these sectors. Regardless of which report you choose to read, every major market analysis views continued growth across the logistics industry. The global logistics market accounted for nearly $9 trillion in 2023, and most reports anticipate a compound annual growth rate (CAGR) of anywhere from 4-6% over the next 8 years.
As the market continues to grow at such a steady rate, investors have the potential for healthy returns year-over-year. On top of the continued demand and projected growth, the logistics industry is also ripe for innovation. While much of the investor interest in logistics during the pandemic centered around last-mile delivery services, investors quickly picked up on profit potential of 3PL and technology.
One of the major draws for investing in 3PL providers is the lack of physical assets, like trucks. Rather than investing in companies that are heavily asset-laden, private equity funds can look to 3PL providers that require significantly less capital than a fleet of trucks would. With far less cash flowing out the door to buy and maintain trucks, this becomes a major boon to revenue in both the short and long term.
Alpine’s investment into software provider Trucker Tools in 2021 is a prime example of private equity’s interest in the technological offerings in logistics. Trucker Tools provides software to freight brokers that offers freight tracking and available capacity locating across their network. At the time of Alpine’s investment, Trucker Tools’ driver app had just over 1 million downloads, and that number jumped to over 2 million downloads by late 2022.
More recently, Altana has received large cash infusions from private investors. Since 2019, Altana has raised more than $200 million dollars through venture capital investors. Altana partners with shippers and logistics companies to use its AI platform to map supply chains and identify potential vulnerabilities and problematic suppliers. This is the next step in technological innovations aiding 3PL providers and shippers.
Technology and Innovation
Much of the logistics industry still has untapped growth potential when it comes to technology. Leading companies are fully steering into the expanding technological landscape to simplify and streamline their processes.
From Artificial Intelligence and Machine Learning to the Internet of Things (IoT), thought leaders in the industry are using every advantage they can find to place themselves ahead of the competition. Technology partnerships like Scarbrough’s partnerships with Altana and Raft provide enhanced tools to streamline processes across the entire logistics timeline, from supply chain visibility to automated paperwork and billing.
These types of partnership provide a mutually beneficial scenario, as investors provide the funds for businesses to add technology to their operations, while also creating a more efficient, streamlined supply chain that boosts the bottom line in the long run.
For more information on how investments in logistics can benefit your business, reach out to Scarbrough to talk solutions.
