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Supply Chain News: US 3PLs had Banner Year in 2018, Armstrong & Associates Research Finds

 

Net Revenues were Up Amazing 12.1%, more than Twice Nominal GDP Growth

July 8, 2019
SCDigest Editorial Staff

We learned a couple of weeks ago in CSCMP's State of Logistics Report for 2019, based on 2018 data, that logistics spending in the US was up a very robust 11.4% last year, taking logistics costs as a percent of GDP to 8.0% in 2018, versus 7.5% in 2017.

Not surprisingly, that also meant a banner year in 2018 for third party logistics providers both in the US and worldwide.

Supply Chain Digest Says...

In terms of year-over-year net revenue growth, value-added warehousing sales grew 6.3% to $33.1 billion.


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According to the 3PL sector analysts at Armstrong & Associates last week, US 3PL companies did even better than the rise of total logistics spending, with sector net revenues (gross revenues less purchased transportation) estimated to have risen 12.1% in 2018 to $86.4 billion, while overall gross revenues increased 15.8%.

That took total US 3PL market to $213.5 billion in 2018. The last time the U.S. saw this level of 3PL gross revenue growth was in 2010, when the 3PL market bounced back 19% from its 16% decline in 2009 during the great recession.

Armstrong says the two primary drivers of 3PL sector growth were: (1) an extraordinary inventory build as shippers imported products to beat the implementation of Trump's import tariffs and (2) solid domestic economic expansion. Coupled with tight domestic carrier capacity driving up rates, increasing fuel surcharge revenue, and expanding ecommerce business, the 2018 3PL market realized that extraordinary growth over 2017, with net revenues up more than two times nominal GDP growth of just over 5% last year.

The non-asset-based Domestic Transportation Management segment (DTM), which primarily consists of freight brokerage services and to a lesser extent managed transportation, and digital freight matching companies/digital freight brokers (DFMs), led all other 3PL segments with overall gross revenue increasing a whopping 20.7% to $86.5 billion, Armstrong says.

"DTM providers' top-line revenues benefited from heavy port to warehouse and warehouse to warehouse moves, the strong domestic economy, rising carrier rates, increased fuel surcharge revenue, and continued outsourcing amongst shipper," Armstrong said in a press release, adding that "To find a better growth year, we have to go back to 2005 when the DTM segment had year-over-year growth of 21.2%."

However, Armstrong also notes that the DTM market is seeing emerging competition from new digital freight brokers (DFBs) such as Uber Freight, Convoy and Transfix. One thing digital freight brokers have done is place an emphasis on "digitalizing" DTM operations replacing manual carrier sales/procurement and back office processes.

The other non-asset-based segment, International Transportation Management segment (ITM), consisting of air and ocean freight forwarding and complementary value-added services, posted 15.4% gross revenue growth in 2018 to $61.9 billion. This was ITM's best showing since 2010 when the segment bounced back over 30% from the great recession. 2018 ITM net revenues grew 12.1% to $22.1 billion.

2018 Dedicated Contract Carriage (DCC) segment net revenues grew an estimated 15.8% to $17.8 billion. The domestic segment leader J.B. Hunt Dedicated Contract Services (DCS) with 10,115 power units in dedicated, posted outstanding net revenue growth of 25.9% to $2.2 billion pushing its DCC market share over 12% on a net revenue basis.



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Despite with the import tariff inventory builds, Value-added Warehousing and Distribution (VAWD) had a lower rate of growth in 2018 compared to the transportation management-related 3PL providers, with gross revenue growth of 8%. That took the sectors total gross revenue to $43.2 billion. However, VAWD's gross revenue growth of 8% to $43.3 billion was the best the segment has realized since 2011, when it posted an 8.3% increase. In terms of year-over-year net revenue growth, VAWD sales grew 6.3% to $33.1 billion.

Interestingly, the State of Logistics Report included the chart below, which shows how leading US 3PLs are aggressively expanding the warehouse space they have under management:

So, we now await the annual 3PL study from Dr. John Langley of Penn State and colleagues, which will be released as always at the CSCMP conference in September in Anaheim.


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