U.S.-based 3PLs break $110 billion mark for 2006, says Armstrong report
By Jeff Berman, Senior Editor -- Logistics Management, 4/11/2007
STOUGHTON, Wis.—Following up a strong 2005 in which revenues for United States-based third-party logistics providers (3PLs) passed $100 billion for the first time, 2006 revenues took it a step further with revenues breaking the $110 billion mark for the first time, according to a report released this week by Armstrong & Associates, a supply chain management consultancy.
The report, entitled “Concentration: U.S. and Global Third-Party Logistics Financial and Acquisition Results for 2006,” stated that gross 3PL revenues for 2006 were $113.6 billion, which is a 9.5 percent increase from 2005’s $103.7 billion.
3PL market segments in the report were broken into four categories by Armstrong: domestic transportation management, international transportation management, dedicated contract carriage, and value-added warehouse/distribution.
International transportation management saw the highest year over year net revenue growth at 17.7 percent and $15.9 billion , followed by domestic transportation management at 12.0 percent and $6.6 billion. Next were dedicated contract carriage at 8.0 percent and $10.9 billion, and value-added warehouse/distribution at 11.9 percent and $53.1 billion.
Armstrong & Associates President Evan Armstrong told Logistics Management that on the international transportation management side, which saw the highest year-over year net revenue growth, the ongoing trend of global trade, especially in the Asia Pacific and North America regions, is what is leading the charge on that front.
“Companies like Kuehne + Nagel that are handling very large ocean freight forwarding volumes, and Expeditors, who handles a lot of the shipments from the Asia Pacific into U.S., are seeing a lot of growth on the international side,” said Armstrong.
Although the 3PL domestic transportation market had a strong 2006, it was down six percent compared to 2005. The report suggested that this drop off could be partially attributed to a slowdown in the overall U.S. economy, which saw the lack of a true peak shipping season and an above average amount of excess capacity throughout the trucking industry.
“On the financial side, domestic transportation managers for U.S. 3PLs tend to have softer revenues during a slowdown like this,” said Armstrong. “And because it is also easier to get capacity—if they are very efficient about how they operate—they are able to hold margins.
Armstrong used C.H. Robinson Worldwide Inc. as an example of a company being able to hold margins in a tough economic climate, because it is able to free up some capacity in a downward cycle and keep the spread between what it are getting paid and paying out in line in good times as well as bad. “This depends on how well a 3PL can sell transportation management programs over and above just truckload brokerage.”
SHIPPER TAKEAWAYS
Given the current financial state of the 3PL market, shippers are keenly aware of the need to have more expertise in the area of importing and exporting, Armstrong noted. And by leveraging 3PLs for this knowledge and guidance, it has led to a fair amount of growth in the international transportation management segment and made 3PLs in this segment more attractive to shippers as well.
“It is no longer just a question of 3PLs just handling things in North America,” said Armstrong. “Every mid-to-large sized shipper either has some vendors or manufacturing, or customers in Europe or the Asia Pacific, and more and more are relying on international transportation managers and freight forwarders to provide the expertise in handling those moves.”
And the growing role of technology is continuing to play a meaningful role in how shippers utilize 3PLs today as well, said Armstrong.
“When you look at non-asset based 3PLs, they have two things to sell: people and processes,” said Armstrong. “Technology is a strong component of their ability to effectively manage and re-engineer processes to make supply chains more efficient. It is an enabler and is necessary in order for 3PLs to get to the table in terms of working with a lot of multinational or global corporations.”
FUTURE GROWTH PROJECTIONS
The report predicts that the compound annual growth rates for the four 3PL segments profiled will grow between 6 and 15 percent in 2007, with domestic transportation management projected for 10-to-12 percent, international transportation management at 12-to-15 percent, dedicated contract carriage at 6-to-8 percent, and value-added warehouse/distribution at 8-to-9 percent.
For more information on Armstrong & Associates’ “Concentration: U.S. and Global Third-Party Logistics Financial and Acquisition Results for 2006” report, call 800-525-3915 or go to http://www.3PLogistics.com.
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