Market Analysis: 3PLs Would Just as Soon Forget 2009

Third-party logistics providers (3PLs) can be forgiven if they choose to just forget about 2009 entirely. Domestic revenues for the 3PL market were dramatically off in 2009, mirroring the effects of the economic recession.

According to analysis from market research firm Armstrong & Associates, hardest hit was the international transportation management (ITM) segment with gross revenue (turnover) falling 23.7% as total U.S. import and export ocean TEUs (trailer equivalent units) dropped 12.3%. Airfreight metric tons dropped similarly with reductions at JFK and the Chicago airports exceeding 20%.

As prices fell in the face of soft demand, net revenues (gross margins) shrank by 18.9%. Expeditors International, the largest U.S. freight forwarder, saw gross revenue decrease 27% and net revenue decrease 14%.

The good news is that first quarter 2010 results have included double-digit improvements in ITM and other 3PL market segments as the economy steadily recovers.

U.S. 3PL Market 1996 – 2010E (US$ Billions)

Overall, U.S. 3PL market gross revenues decreased 16% in 2009, dropping to $107.1 billion. Dedicated Contract Carriage (DCC) fell 16%. Domestic Transportation Management (DTM) was down 15.1% in gross revenue and 11.4% in net revenue. Value-Added Warehousing and Distribution (VAWD) suffered with only single digit reductions. The VAWD segment’s gross and net revenues were both down 5.3% and 6.9% respectively compared to 2008.

Table 1. Revenues and Profitability by 3PL Segment – 2009


3PL Segment

Gross Revenue (Turnover)
(US$ Billions)

% Reduction 2009 vs. 2008

Net Revenue (US$ Billions)

% Reduction 2009 vs. 2008

Net Income (Profit Margin)

% Reduction 2009 vs. 2008

DTM

31.8

-15.1

5.2

-11.4

12.9%

-8.5

ITM

35.1

-23.7

14.6

-18.9

5.9%

-6.3

DCC

9.4

-16.0

9.2

-15.9

3.8%

-13.6

VAWD

27.8

-5.3

21.9

-6.9

2.1%

-25.0

Total*

104.1

-16.0

50.9

-12.7

4.7%

-11.3

*Total 2009 gross revenue (turnover) for the 3PL market in the U.S. is estimated at $107.1 billion. $3 billion is included for the contract logistics software segment.

Net income margins dropped in all categories. The ITM segment was the least affected with a 6.3% drop. VAWD took the biggest hit with a 25% drop. Overall, 3PL net income margin dropped from 5.3% in 2008 to 4.7% in 2009.

Armstrong & Associates anticipates a significant recovery for 3PLs in 2010. Many first quarter results suggest a recovery that will restore the 3PL market to 2007 levels, and the firm predicts 13.4% growth in gross revenue and 8.3% growth in net revenue in third-party logistics for 2010.

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