E-commerce pushing 3PL growth in 2020

by Inside Logistics Online Staff

MILWAUKEE, Wisconsin –E-commerce is dominating as the fastest growing segment for third part logistics providers.

U.S. 3PL e-commerce revenues reached US$43.4 billion in 2019 and are expected to see a 28 percent compound annual growth rate (CAGR) through 2020 as e-commerce purchases continue during the pandemic and companies continue to outsource versus build internal fulfillment operations.

According to Armstrong & Associates, Inc. (A&A’s) newest report, “VOLATILE – Latest Third-Party Logistics Market Results and Predictions for 2020 Including Estimates for 190 Countries”, retailers rely on Amazon and third-party logistics providers to help manage omnichannel and e-commerce operations.

With COVID-19 stay-at-home orders and business shutdowns, value-added warehousing and distribution (VAWD) had significant growth in business-to-consumer (B2C) e-commerce fulfillment activity during the first half of 2020, while business-to-business (B2B) activity waned. The overall impact for the first half of 2020 was a VAWD gross revenue decline of 7.1 percent and a net revenue decrease of 5.8 percent. Q3 and Q4 should see incremental increases as the economy continues to comeback in spits and spurts, and as VAWD customers rush to restore inventory levels.

Within the asset-heavy dedicated contract carriage (DCC) 3PL market segment, gross revenue was off three percent for the first half of 2020 and net revenue saw a slight decline year-over-year. DCC segment shipment volumes declined, but the overall impact was lessened due to the longer-term nature of its customer agreements.

COVID-19 economic volatility in domestic transportation and increases in domestic transportation demand will push DCC growth for the remainder of the year as shippers look for capacity and as DCC providers continue to benefit from contracts negotiated prior to the pandemic.

In the domestic transportation management (DTM) 3PL segment for the first half of 2020, there was an eight percent drop in gross revenues and a 16 percent decline in net revenues as shipment volumes dropped off across all modes, especially with customers in automotive, industrial, building/construction, and elements/raw materials vertical industries. Reefer and dry van truckload fared better than construction-dependent flatbed.

The international transportation management (ITM) 3PL segment, consisting of air and ocean freight forwarding and complementary value-added services saw 3.8 percent gross revenue growth in the first half of 2020. In Q2 2020, ocean and air volumes were off, while air and ocean capacity both remained tight.

This resulted in significant rate increases over last year which drove up gross revenues. With the shutdown, commercial airline belly space, which accounts for approximately 40 percent of total capacity, went away and ocean carrier capacity tightened due to blank (cancelled) sailings out of Asia.

In 2019, overall U.S. 3PL market net revenues (gross revenues less purchased transportation) grew 5.9 percent to $91.5 billion, while overall gross revenues declined 0.3 percent, bringing the total U.S. 3PL market to $212.8 billion. For 2020, overall U.S. 3PL gross revenues are expected to work back to a lesser year-over-year decline of just under one percent and a slight net revenue increase for the year.

Global third-party logistics revenues reached $951 billion in 2019 resulting in a mere 2.1 percent increase over 2018 versus the 9.1 percent increase it registered in 2018. Due to COVID-19 and trade war headwinds, we are expecting a 2.9 percent decrease in 3PL revenues globally.