Three-part exclusive interview: Evan Armstrong on state of 3PL marketplace

San Francisco—As noted in a recent LM website post,  Armstrong & Associates has announced the release of its latest report, “Increasingly Strategic: Trends in 3PL/Customer Relationships.”

This news comes in advance of our annual magazine feature in June on “Top 50 Global & Domestic 3PLs.” 

In this exclusive three-part interview, Evan Armstrong, president of the consultancy, explains the current volatile and uncertain business environment, an increasing number of logistics providers are being forced to take dramatic action to generate positive impact rapidly.

Logistics Management (LM): What were the main surprises to surface in your research this year?

Evan Armstrong: We are actually surprised by the limited impact COVID-19 has had on 3PL operations staffing. It seems to have disrupted China from a staffing perspective much more than we are seeing in the U.S.; most of the operational disruption we’ve seen has been in trying to fulfill huge numbers of B2C e-commerce orders, supplying stores with food & grocery items, or in finding airfreight capacity for imports of high-tech goods and PPE and other healthcare related products. 

LM: Were any particular 3PLS hurt by the trade tensions between the U.S. and China in 2019?

Armstrong: The U.S. economy is tightly interconnected with China and so are its supply chains. The import tariffs have been a continued drag on international trade, the growth of 3PLs and other U.S. businesses, and the overall U.S. economy. The only bright spot for 3PLs has been on the import compliance side of International Transportation Management (ITM) operations where there has been increased demand for expertise. It’s hard to believe the tariffs are still in place given our current economic situation with COVID-19. They should be removed until we see positive economic growth. 

LM: While it’s probably too early to tell, what impact with COVID-19 have on global and domestic 3PLs?

Armstrong: Domestically, Q1 was okay for 3PLs after a soft 2019 which saw overall U.S. gross revenues decline slightly. The first quarter saw some extra demand and resultant revenue increases within the Food & Grocery, Consumer, Internet Retailing, and Technological vertical industries as products were hoarded by consumers and computers and office equipment were purchased to adhere to stay-at-home rules. Q2 has seen about a 15% drop in Domestic Transportation Management (DTM) 3PL Segment gross revenues as volumes have dropped off across all modes, especially with customers in Automotive, Industrial, Building/Construction, and Elements/Raw Materials vertical industries.

LM: What about the Reefer and Dry Van Truckload sectors?

Armstrong: Good questions. These are faring better than construction dependent Flatbed. On the International Transportation Management side ocean and air volumes are off, while air capacity remains tight due to the lack of commercial airline belly space. Dedicated Contract Carriage (DCC) 3PL segment volumes are off as well, but the impact is lessened due to the longer-term nature of its shipper agreements. Value-Added Warehousing & Distribution (VAWD) has seen significant growth in B2C e-commerce fulfillment activity, while B2B business has waned. Like DCC, VAWD 3PLs also benefit from being in longer-term business contracts (the average term is three years). 

LM: Anything else?

Armstrong: Glad you asked. Additionally, most entered 2020 with full warehouses, so storage fees are still being paid while in-and-out activity and value-adds have declined. Q3 and Q4 should see incremental increases as the economy opens up in spits and spurts and we expect overall 3PL gross revenues to work back to a lesser year-over-year decline of 2 to 5 percent for the year. 

LM: What about the global picture?

Armstrong: Internationally declines have been very region and country specific based upon the operational impacts of COVID-19. China suffered extensively in Q1, Europe has been impacted dramatically in the South, and Southeast Asia has seen the greatest impacts in Singapore and Indonesia. 

Tomorrow: Part II of Armstrong interview