2015 State of Logistics 3PL: Will the deals continue?

In its annual study on the third-party logistics provider (3PL) market, the consultancy Armstrong and Associates notes that big deals dominated the past 12 months in this increasingly vital sector.

In January 2014, FedEx purchased GENCO, a market-leading, value-added warehousing and distribution player for $2 billion. Last August, Norbert Dentressangle made the leap from France to the U.S. by purchasing Jacobson Companies for $750 million in cash. Then, in the spring of 2015, Norbert Dentressangle sold itself to voracious acquirer XPO Logistics for $3.5 billion.

“These deals are reflective of a 3PL sector that’s now dominated by around 50 companies based in post-industrial countries,” says Dick Armstrong, the consultancy’s president. “These service providers have scale based on geographical coverage, IT, and processes that create threshold levels that bar smaller rivals from overtaking them with organic growth alone.”

According to Armstrong, two U.S. 3PL market segments experienced double-digit growth in 2014—clearly reflecting overall economic growth. Non-asset based domestic transportation management (DTM) gross revenues grew 15.4 percent, while net revenues grew 20.5 percent. Dedicated contract carriage (DCC) gross and net revenues both increased by 10.4 percent.

“DTM is the modern and sophisticated offspring of freight brokerage,” says Armstrong. “DCC provides dedicated truck capacity in a market often dominated by tractor shortages that are driven by a lack of drivers.”

With the American Trucking Associations estimating that the U.S. trucking market has a shortage of more than 40,000 drivers, Armstrong only sees the DCC segment taking off over the next 12 months. “DCC is the primary protection mechanism for shippers when demand outpaces supply,” he adds.

According to research done by William Greene at Morgan Stanley, 48 percent of large shippers use two to five freight brokers, and 38 percent of large shippers use six or more freight brokers. Freight brokers now handle an estimated 14 percent of all less-than-truckload and truckload shipments in North America, with larger shippers looking to them more often to increase their options, especially during periods of tight trucking capacity.

In the meantime, reasonable adjustments to total logistics costs indicate that 3PL penetration rates are about 20 percent in most post-industrial economies, contend Armstrong analysts. North American third-party logistics revenues for 2014 were $187.6 billion, while revenues in Asia Pacific hit $269.6 billion, the highest region recorder in the report. Overall, global 3PL revenues hit $750.7 billion last year.