2013 U.S. 3PL revenue sees 3.2% annual increase to $146.4 billion, reports Armstrong

Despite various factors working against it, United States 2013 third-party logistics (3PL) gross revenue again saw annual gains, up 3.2 percent over 2012 at $146.4 billion, according to data released by supply chain consultancy Armstrong & Associates.

Armstrong said in the report that while global trade and economic activity serve as the “ultimate drivers” of 3PL market growth, the maturity of competitive service offerings and the size of major players contribute to slower growth rates.

Individual market segments showed:
-domestic transportation management (DTM) gross revenue at $49.2 billion was up 8.4 percent year-over-year, and net revenue at $7.1 billion was up 11.3 percent year-over-year;
-international transportation management gross revenue at $46.2 billion was down 0.3 percent year-over-year, and net revenue at $18.0 billion was up 0.6 percent year-over-year;
-dedicated contract carriage (DCC) gross revenue at $12.0 billion was up 3.3 percent year-over-year, and net revenue at $11.8 billion was up 3.3 percent;
-value-added warehousing and distribution (VAWD) gross revenue at $35.9 billion was up 0.3 percent year-over-year, and net revenue at $27.7 billion was up 0.4 percent year-over-year; and
-total 2013 3PL revenue at $146.4 billion was up 3.2 percent, with net revenue at $64.6 billion up 1.7 percent (this figure includes $3.1 billion for contract logistics software)

Armstrong & Associates President Evan Armstrong told LM that his firm is expecting to see 2014 be up 5.2 percent over 2013 at an estimated $154.0 billion, which would represent a better growth year.

“Last year, growth in the sector was fairly anemic, with a lot of it due to the overall economy still being fairly sluggish and slow Asia-to-U.S. trade volumes, as well as slow growth for freight forwarding and ocean freight, too,” he explained. “We are starting to see a little bit of that turn around this year, but growth is still pretty anemic in those segments.”

Each of the four 3PL segments tracked by Armstrong saw net revenue growth from 2012 to 2013, which shows that market growth is still occurring and was described as cyclical and determined by overall economic growth by Armstrong.

In the past, he said the 3PL sector has grown about three times as fast as GDP, and now the market is at point where it is “getting big enough” and will likely grow at a rate less than three times GDP unless there is some significant economic activity to the upside.

“In 1997, as an example, the year-over-year growth in the U.S. 3PL market was 3.4 billion,” he said. “Given the fact that it was a much smaller market size, that equated to an 11 percent growth rate. Last year was at 4.6 billion of growth, which only equated to 3.2 percent annual growth, so part of what is going on here is we have similar growth rates in terms of billions and if you look at annual growth in terms of billions we are still at an uptrend. But we are not talking about a $38 billion market anymore, now we are up to more than $140 billion, so if we add similar growth in terms of billions it is going to be a much lower percentage [for the annual growth rates].

For the DTM market, which features the sector’s largest player in C.H. Robinson Worldwide, as well as others like Echo Global Logistics, and Transplace, among others, Armstrong said this sector tends to be comprised of companies with fairly established service offerings.

Having these established service offerings within the DTM space is an emerging market trend, according to Armstrong.

“Many of these companies have grown and developed significant service offerings,” he noted. “This is for many customers across multiple segments. We have really seen this grow over the last five years. If you are a mid-to-large-sized 3PL compared to five years ago, their capabilities and performance is now a lot better, and so is the overall value being created for customers. Many of these companies have significant ability to secure capacity to help customers manage cross-border transportation, especially Mexico to the U.S., which is positively impacted by near-shoring and increased U.S.-Mexico trade.”

As for brokerage in the DTM space, Armstrong said the increased competition within brokerage among so many players has resulted in better performance for customers, compared to the past.

Back then, if a load did not generate enough margin for a broker, the broker would tell the shipper the load could not be handled. But now, many leading 3PL freight brokers will move the load at a loss just to make sure they are providing good service levels for customers.

On the international side, Armstrong said that this segment will only do as well as the Asia-to-U.S. trade lane is doing, and in Asia he said there is currently more of a focus on intra-Asia and fulfillment and distribution within Asian countries, and less focus on exports.

For the DCC market, Armstrong said the fact remains that carrier capacity is not growing, but should a spike in demand occur could lead to further rate increases and lead to an increased focus on getting and securing capacity, especially on the automotive side.

And for VAWD, the segment, according to Armstrong is becoming more mature, with mid-sized to larger retail-focused 3PLs like Genco, Jacobson, and Menlo Worldwide all having significant U.S.-based warehousing networks. And these companies and others are focused on taking on business that makes sense and working with customers on a more strategic level, for things like inventory management and providing existing customers with more functions and capabilities.

“At the same time, a lot of U.S. warehouses are full and inventories are pretty high right now, with a lot of this related to cross-selling transportation management and other capabilities within these large warehousing companies,” he said. “E-fulfillment and Internet retailing is growing at 140 percent for Fortune 1000 companies and having an impact on this segment’s 3PLs, as is Amazon’s growth.”

On a year-to-date basis, things within the 3PL sector are going well overall, with business growing for many shippers, too, due to things like near-shoring, industrial manufacturing, oil and gas production, as well as healthcare device manufacturers more frequently working directly with 3PLs, Armstrong noted.