Supply Chain news: Armstrong & Associates report surge in 3PL activity

Overall, 3PL U.S. gross revenues jumped 18.9 percent in 2010 to $127.3 billion slightly exceeding the 2008 market result.
By Patrick Burnson, Executive Editor
May 20, 2011 - SCMR Editorial

Third-party logistics providers are growing at multiples of Gross Domestic Product, and should be able to sustain this pace through 2011, said a prominent industry analyst.

According to Armstrong & Associates Chairman Richard Armstrong, his consultancy’s recently released market analysis shows that the international transportation management 3PL segment 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 market result.

“The main takeaway here is that 3PLs are taking advantage of ongoing economic globalization,” he told SCMR in an interview. This observation mirrors that of other analysts who spoke with LM—a sister publication—this year.

The compound annual growth rate (CAGR) for third-party logistics market net revenue from 1995 through 2010 was 12.7 percent.  2009 was the only negative year since we began tracking results in 1995.  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 for 2010. Armstrong cited 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’” said Armstrong, “and the larger 3PLs are expanding at a rate to meet this demand.”

Armstrong said that this does not mean smaller “niche” players will not remain in the game, however.

“There is still room for a few specialists to compete in the global marketplace,” he said. “This is especially true of 3PLS focused on auto parts, pharma, and anything in the cold chain.”

At the same time, though, Armstrong said the barriers to entry are getting higher all the time.

“This is a capital intensive business,” he said, “with requirements for sophisticated supply chain visibility. That means IT at the front end and back end of every enterprise. A new company would have real trouble competing in this marketplace.”

Yet even at the current pace of maturation, Armstrong maintained that 3PLs have room to expand beyond current penetration levels.

“Right now, it’s at 20 percent,” he said. “We see it moving to 40- or 45 percent before leveling off.”

Revenues and profitability increased in all four 3PL segments in 2010.  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 since fuel related costs have minimal impact. 

Overall, net income increased 23.4 percent from 2009 levels.

For related articles click here.



About the Author

image
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).

Subscribe to Logistics Management magazine

Subscribe today. It's FREE!
Get timely insider information that you can use to better manage your
entire logistics operation.
Start your FREE subscription today!

Recent Entries

Even though not all publicly-traded less-than-truckload carriers (LTL) have posted second quarter earnings yet, the early consensus for those that have issued results is looking very good.

The advance estimate for second quarter GDP at 4.0 percent could serve as a sign of a steadier and improving economy.

Following the lead of its Congressional Colleagues in the House of Representatives, the United States Senate yesterday approved a measure geared to keep federal surface transportation funding intact through December 20 with a nearly $11 billion stopgap fix.

XPO Logistics announced second quarter earnings and the acquisition of two companies, New Breed Logistics, a non asset-based 3PL focusing in contract logistics services, for roughly $615 million, and Atlantic Central Logistics, a 3PL provider of last-mile logistics services, for roughly $36.5 million.

The report, entitled “Outlook for the Domestic Transport and Logistics Market in 2H14 and Beyond,” takes the view that strong freight levels in the second quarter have left trucking companies in a good position: one in which they need to come up with new plans to handle rising demand. But even with that positive momentum afloat, the report observes that there are some familiar challenges intact, such as a lack of qualified drivers and the regulatory drag from the new hours-of-service rules that took effect in July 2013.

Article Topics

News · 3PL · Third Party Logistics · Management · All topics

About the Author

Patrick Burnson, Executive Editor
Patrick Burnson is executive editor for Logistics Management and Supply Chain Management Review. Patrick covers 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. Contact Patrick Burnson

Comments

Post a comment
Commenting is not available in this channel entry.