Despite market conditions, 3PLs making an impact with strong service portfolios
Jeff Berman, Group News Editor -- Logistics Management, 5/6/2008
STOUGHTON, Wis.—Revenues for United States-based third-party logistics providers (3PLs) eclipsed the $100 billion in 2007 for the third consecutive year, according to a report by Armstrong & Associates, a supply chain consultancy.
The report, entitled “Hanging Tough: U.S. and Global Third-Party Logistics Market Financial and Acquisition Results for 2007 and Projections to 2010,” notes that 2007’s U.S. 3PL revenue output of $122 billion is impressive, considering the much-publicized ongoing “freight recession,” which dates back to roughly late 2006 and has seen excess capacity, fuel costs, and inventory reductions severely impact supply chain operations for shippers and carriers.
And despite these challenging market conditions US 3PL revenues cracked the $100 billion mark at $103.7 billion in 2005, and hit $113.6 billion in 2006. Last year’s $122 billion represents a 7.2 percent uptick from 2006.
As in its past reports, Armstrong divides 3PL market segments into four categories: domestic transportation management, international transportation management, dedicated contract carriage, and value-added warehouse/distribution (VAWD).
International transportation management paced these categories with the highest year-over-year net revenue growth at 9.5 percent and $17.0 billion, followed by domestic transportation management at 8.0 percent and $6.0 billion, VAWD at 7.7 percent and $22.5 billion, and dedicated contract carriage at 2.7 percent and $11.5 billion.
The report added that 3PL revenue growth was highest in non-asset transportation management, and it also noted that overall industry growth continued a pattern of being more than three times the growth of the US gross domestic product.
Armstrong & Associates President Richard Armstrong told LM in an interview there are multiple reasons for the continued growth of 3PLs, even during this difficult domestic economic climate.
“[Shippers] continue to outsource logistics activities and depend more on 3PLs to provide them with a wide scope of services, and the increased potential for these services has also increased over time,” said Armstrong. “These services are very complete across broad geographical areas and can be maintained [by 3PLs].”
Another core competency that 3PLs continue to provide shippers with is IT services, added Armstrong. Along with offering enhanced reporting capabilities, Armstrong said IT services like Transportation Management Systems (TMS) are able to give shippers a way to better handle internal management processes, too. He cited CH Robinson’s carrier scorecard and customer report platforms, which are “individualized” by things like carrier capacity by motor carriers and customers providing shipments.
“If you compare 3PL IT to where it was ten years ago, this has gotten to be pretty sophisticated stuff with pretty sophisticated process controls and process improvements,” said Armstrong. “The best companies have figured out how to get and keep the best personnel, how to [motivate] them, and what needs to be tracked and accomplished. There is a lot of capability there.”
With exports on the rise in 2007 and into this year, it is not a huge surprise that 3PL international transportation management revenue is healthy. Part of the reason for continued international momentum, according to Armstrong, is better inventory management being provided by 3PLs at factory locations.
With good visibility and processes in place by 3PLs, Armstrong said shippers are now better quipped to track international shipments at a high level.
And on the VAWH side, RF-based warehousing has become a standard feature that has allowed for significantly better inventory control when goods are inside a warehouse, said Armstrong.
Market conditions at play: With truck tonnage and intermodal volumes down across the board going back to last year, coupled with the ongoing spike in fuel prices, 3PLs are still seeing revenues remain healthy.
Armstrong says this is a reflection of the division between asset and non asset-based 3PLs, with domestic and international transportation management 3PLs primarily being non asset-based. VAWH and dedicated contract carriage, on the other hand are much more asset-based, he said.
“If you are non asset-based, you don’t have to be as concerned about putting miles on trucks and pulling full loads to cover all the basic costs involved,” said Armstrong. “Domestically, [3PLs] are doing a much more careful job with regards to capacity that they control on a day to day basis and are working much harder on maintaining capacity, helping the carriers get things matched up and recover fuel surcharges and staying alive. It is a different story than it was ten years ago when capacity was pretty much taken for granted. These days, if you can get the capacity you certainly want to take care of the people that can provide it, so they are being treated much more like customers.”
Shipper-3PL relationships: Today’s market is one in which there are more partnerships between shippers and 3PLs than there have been in the past. And with that there has been more willingness for shippers to rely on 3PLs as part of the strategic solution for shippers, said Armstrong.
“Many large shippers have a different 3PL partner for each continent,” he said. “Sometimes shippers have variations of products, with certain product lines handled by different 3PLs. It is a specialization process done by larger shippers. In these situations 3PLs often act as a shippers supply chain manager or lead logistics provider in different areas or segments.”
Future growth projections: The Armstrong report predicts that the compound annual growth rates for the four 3PL segments profiled will grow between 2-10 percent from 2008 to 2010, with domestic transportation management projected for 10-to-12 percent; international transportation management at 8-to-10 percent; dedicated contract carriage at 2-to-4 percent, and VAWD at 6-to-8 percent.
For more information on Armstrong & Associates’ “Hanging Tough: U.S. and Global Third-Party Logistics Market Financial and Acquisition Results for 2007 and Projections to 2010” report, call 800-525-3915 or go to http://www.3PLogistics.com.
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