Armstrong & Associates report cites 6.6 annual gain percent in 2012 3PL revenue

Supply chain consultancy Armstrong & Associates said this week that total United States 2012 third-party logistics (3PL) gross revenue—at $141.8 billion—were up 6 percent over 2011.

The firm said that U.S. revenues’ modest increase in 2012 resembling the slow growth rate of its GDP, and outside of the U.S., Armstrong noted that 2012 results reflected a “recessionary Europe and warm but not hot results in Asia.”

Individual market segments showed:
-domestic transportation management gross revenue at $45.1 billion was up 9.2 percent year-over-year, and net revenue at $6.3 billion was up 5.4 percent year-over-year;
-international transportation management gross revenue at $46.3 billion was up 0.4 percent year-over-year, and net revenue at $17.9 billion was up 1.0 percent year-over-year;
-dedicated contract carriage (DCC) gross revenue at $11.6 billion was up 4.5 percent year-over-year, and net revenue at $11.4 billion was up 4.7 percent year-over-year;
-value-added warehousing and distribution (VAWD) gross revenue at $35.8 billion was up 5.3 percent year-over-year, and net revenue at $27.6 billion was up 3.8 percent year-over-year; and
-total 2012 3PL revenue at $138.8 billion was up 6.0 percent, with net revenue at $63.5 billion up 4.1 percent (this figure includes $3 billion for contract logistics software)

In an interview, Armstrong & Associates Chairman Dick Armstrong said that current growth patterns are likely to remain in the single-digit range until the European economy recovers and the U.S. economy truly picks up some momentum.

“The governmental cutbacks have dampened growth pretty significantly,” he said. “In the U.S., some of these cuts have been made up in the private sector but it has been a very mixed pattern. The situation in Europe is much worse. It is obvious we need to do something for the long-term, which addresses long-term debt as part of the solution. But there needs to be a situation where there is enough stimulus to keep the economy moving along at a good level while long-term plans are worked out in terms of cuts to Medicare and Medicaid that make sense as well as adjustments to Social Security.”

Areas which continue to show promise as a driver for U.S. logistics growth, according to Armstrong, include the consequences of fracking the Bakken & Marcellus shale as well as exporting natural gas, coupled with the decline of foreign oil imports.

One of the real positive, he said, is that the U.S. has an abundance of natural gas and petroleum, although they are not leading to “better results” at the gas pump, whereas if prices at the pump were lower they could serve as a stimulus to the economy.

Armstrong & Associates reported that for the U.S. 3PL market the compound annual growth rate (CAGR) from 1996 to 2012 dipped 0.3 percent to 10 percent compared to last year. With a relatively slight decline, Armstrong said it still speaks to the fact that the outsourcing of logistics & supply chain management will continue as customers seek the most effective ways to control inventory and its costs effectively. 

“Growth rates are still a multiple of what is happening with GDP in the U.S.,” he said. “What we had this year was a growth rate that was two-to-two and a half times what the increase in GDP was. We can expect that these trends will continue at some multiple of whatever the growth is in GDP. The problem is when we have anemic global economic growth, trade and 3PL numbers follow suite and that force down the annual growth rate.”

In terms of how 2013 is shaping up to 2012, Armstrong presented the following estimates in terms of net revenue: 4 percent annual growth for the U.S. 3PL market; up 7-to-8 percent globally; up 9 percent for Domestic Transportation Management; flat to 1 percent for International, and value-added warehousing and distribution up 4 percent.

Armstrong cautioned there is no apparent “magnificent solution” to drive growth, due to federal cuts, but he acknowledged that the expanding activity in e-commerce continues to serve as a source of increasing traction in the 3PL market, not just for business-to-consumer (B2C) but also business-to-business. What’s more, growth in e-commerce, he said, can lead to increased warehousing activity, which can help to drive 3PL revenues up.