Armstrong report focuses on growing third-party logistics market

Jeff Berman, Senior Editor -- Logistics Management, 4/6/2006

STOUGHTON, Wis.—Revenues for United States-based third-party logistics providers (3PLs) passed the $100 billion mark for the first time in 2005, according to a report recently released by Armstrong & Associates, a supply chain management consultancy.

The report, dubbed “Is Bigger Better? Third-Party Logistics Financial and Acquisition Results for 2005,” notes that 3PL gross revenues for 2005 came in at $103.7 billion, representing a 16 percent increase from 2004.

Armstrong divides 3PL market segments into four different areas: domestic transportation management, international transportation management, dedicated contract carriage, and value-added warehouse/distribution.

Behind the 3PL growth
Domestic transportation management saw the highest year over year net revenue growth at 18.3 percent and $4.1 billion, followed by international transportation management (13.6 percent/$14 billion), dedicated contract carriage (10.2 percent/$9.9 billion), and value-added warehouse/distribution 9.5 percent/$47.3 billion).

A main driver for the high level of growth in the domestic transportation management, according to Dick Armstrong, president of Armstrong & Associates, is the tight capacity in the United States trucking industry, along with a reduction in train speeds, which he said has hindered the efficiency of rail transportation, especially in the area of intermodal transportation.

“Levels of imports have remained high and while we don’t have the big capacity crunches at the ports of Los Angeles and Long Beach like we have had in previous years, the volumes are still very high,” said Armstrong. “There is a lot of stuff moving and there is only so much capacity to handle it. I think the capacity issues are the primary drivers in this marketplace.”

Another factor spurring on 3PL growth is the continued pattern of outsourcing, noted Armstrong. The reason for this: Companies often find it easier to buy “expertise capabilities,” whether it is sophisticated IT systems or something else, rather than attempting to develop them in-house.

Continued growth and its impact on shippers
The report predicts that the compound annual growth rates for the four 3PL segments covered in the report will grow between eight and 15 percent, with value-added warehouse/distribution projected for 8-to-9 percent, dedicated contract carriage at 7-to-8 percent, international transportation management at 11-to-12 percent, and domestic transportation management at 14-to-15 percent.

What shippers need to understand and focus on when it comes to 3PLs, said Armstrong, is that it is important for them to carve out relationships with 3PLs that are going to have multi-year “lives” to them.

“With capacity constraints, the high level of IT needed to run modern supply chains, and the requirements of global transportation, it behooves shippers to find [3PL] partners who are going to be able to deliver these essentials,” said Armstrong. “It is important for shippers with global supply chains to ensure they have 3PL partners who can help maintain those supply chains and help them do it very economically on a yearly basis.”

For more information on Armstrong & Associates’ “Is Bigger Better? Third-Party Logistics Financial and Acquisition Results for 2005” report, call 800-525-3915 or send an e-mail to Armstrong@3PLogistics.com