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Top 50 3PLs: Getting the balance right

According to all reports, the third-party logistics industry is surging again, but experts agree that growth will reach a plateau in the coming years due to a number of looming economic uncertainties. Here’s an overview of how the market is currently shaping up.
By Patrick Burnson, Executive Editor
June 01, 2011

Establishing close relationships with “key logistics service providers” has long been a precedent with shippers the world over; however, this top priority may have faced its sternest test during the last recession. By most accounts, however, the worst is behind us, and those who are left standing—on both the shipper and service provider side—are gathered in a tight circle.

In fact, that circle could indeed become even tighter. The Institute for Supply Management’s (ISM) Semiannual Economic Forecast points to continued growth throughout the rest of the year. Researchers also suggest now that a global recovery is moving along, shippers are looking to profit from the economic rebound by engaging the most reliable third party logistics providers (3PLs) to help them stretch their supply chains into existing and emerging markets.

ISM’s forecast coincides with the release of Armstrong & Associates’ market analysis showing that the international transportation management 3PL segment led with a 30.1 percent gross revenue (turnover) increase over the course of 2010. According to the consultancy’s chairman Richard Armstrong, third-party logistics providers are growing at multiples of Gross Domestic Product, and should be able to sustain this pace through 2011.

“The main takeaway here is that 3PLs are taking advantage of ongoing economic globalization,” says Armstrong.

Revenues and profitability increased in all four 3PL segments in 2010, according to Armstrong’s findings. Gross revenue increases ranged from 12.9 percent to 30.1 percent and were up 19.4 percent overall. Net revenues (gross revenue minus purchased transportation) were up 13.2 percent. According to Armstrong, net revenues are a better indicator of true business improvement because fuel related costs have minimal impact. Overall, net income increased 23.4 percent in 2010 over 2009 levels.

Armstrong’s report notes that the international transportation management segment of the 3PL market led with a 30.1 percent gross revenue (turnover) and net revenue (gross margin) increases. Dedicated contract carriage followed at 13.1 percent.  Overall, 3PL U.S. gross revenues jumped 18.9 percent in 2010 to $127.3 billion slightly exceeding the 2008 result. The compound annual growth rate (CAGR) for third-party logistics net revenue from 1995 through 2010 was 12.7 percent. 

“When we look back, 2009 was the only negative year since we began tracking results in 1995,” says Armstrong. “From 2009 to 2010, the increase in 3PL net revenue was 4.7 times the rate of U.S. GDP growth.”

One driving factor of 3PL growth was world trade volumes, which increased 12.4 percent in 2010. Armstrong cites a recent report from the International Monetary Fund suggesting that freight integrators are mirroring the success of major multinationals. “Shippers are continuing to go global,” says Armstrong, “and the larger 3PLs are expanding at a rate to meet this demand.”

About the Author

Patrick Burnson
Executive Editor

Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review magazines and web sites. Patrick is a widely-published writer and editor who has spent most of his career covering international trade, global logistics, and supply chain management. He lives and works in San Francisco, providing readers with a Pacific Rim perspective on industry trends and forecasts. You can reach him directly at .(JavaScript must be enabled to view this email address).

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