Ongoing global revenue growth is in the cards for 3PLs, says Armstrong report

Up, up, and away may be an appropriate way to describe the direction of the third-party logistics (3PL) market, based on data recently released by supply chain consultancy Armstrong & Associates.

This data, Armstrong said, is basically an extension of its annual 3PL market analysis that it released over the summer. And it is based on Armstrong’s developing of global logistics cost and 3PL revenue estimates that includes annual projections through fiscal year 2022 and represents seven major regions and 190 countries.

“In 2016, the global third-party logistics market reached $802 billion and is on track to exceed $1.1 trillion in 2022,” Armstrong said. “Global logistics costs were $8.2 trillion in 2016 and should surpass $11.1 trillion in 2022. Globally, the Asia Pacific region is the largest logistics market accounting for 39% of total global logistics costs and 38% of total global 3PL revenues.”

As for the years between now and fiscal year 2022, Armstrong’s data pointed to global 3PL cost estimates for fiscal years 2018 through 2021 coming in at $894 billion, $843 billion, $951 billion, $1.014 trillion, and $1.080 trillion, respectively.

This marks a steady upward growth pattern, unlike from fiscal year 2014 to fiscal year 2015, which saw a 5.5% decline from $834 million to $788 million, which Armstrong said was “primarily due to the U.S. dollar strengthening against other currencies and declining fuel costs.”

Not surprisingly, the highest 3PL revenues, on a regional basis, run in tandem with the world’s most powerful economies.

For 2016, Asia Pacific 3PL revenue led the pack at $305 billion followed by North America at $199.6 billion. Rounding out the top five were Greater China at $175.3 billion, Europe at $172.3 billion, and the United States at $166.8 billion.

Looking at some of these higher revenue regions, Armstrong noted European growth is a byproduct of it coming out of economic austerity driven recession, even though countries north of the Alps like Germany, Norway and the Netherlands are seeing higher financial growth than their geographical counterparts.

What’s more, Armstrong observed that European 3PLs-based on 2016 regional revenue-have penetrated around 25% of the total potential market, with the outsourcing of logistics still providing for growth over and above the over all economy.

“The best Europe-based 3PLs have made acquisitions to globalize their operations and participate in developing markets with higher rates of growth,” said Armstrong.

As for North America, Armstrong said 3PLs are benefitting from an improving U.S. economy with increasing manufacturing levels, the nearshoring of some manufacturing to Mexico, and newly addressable oil and gas operations in Canada and the U.S.

“Consumers in the U.S. bounced back from the great recession of 2009 and started to spend more especially on large ticket items,” explained Armstrong. “All of these factors are driving an improved 3PL market.”

Along with continued logistics outsourcing, the ongoing impact of e-commerce on the global 3PL market cannot be understated nor overlooked, something that is made very clear in the report.

“3PL revenues from e-commerce activity are growing faster than the overall 3PL market,” said Armstrong. “Of the $802.2 billion of total 3PL revenues globally, e-commerce related revenues are expected to grow from $40.6 billion in 2016 to $72.8 billion in 2020, making up 5.1% and 7.2% of total 3PL revenues, respectively. E-commerce 3PL business is generating a compound annual growth rate of 15.7% versus overall 3PL market growth of 6.0% for the same period.” 

E-commerce 3PL revenue is seeing the greatest traction in Asia, driven by increased consumer spending and cross-border purchasing, with Asia-Pacific e-commerce customers spending $22 billion on 3PL services in 2016. That number is expected to jump to $40.2 billion by 2020 based on a compound annual growth rate (CAGR) of 16.4%. China paces e-commerce growth in the Asia-Pacific at $17 billion, with an estimated annual CAGR of 16.3% through 2020.

The United States is also seeing the fruits of increased e-commerce activity, even with Amazon’s market share. Armstrong said U.S. e-commerce customers spent $8.7 billion with 3PLs in 2016, with revenues pegged to increase at a 19.1% CAGR through 2020 and hit $17.6 billion by then, with e-commerce expected to account for 8.5% of the U.S. 3PL market by 2020, which is 3.3% ahead of 2016.