Total revenues for global third-party logistics providers revenues rose 8.1 percent to $869 billion in 2017, according to a recent report from supply chain research and consulting firm Armstrong & Associates.
In its report, entitled “Bulls Lead: Third-Party Logistics Market Results and Trends for 2018,” A&A projects global 3PL revenues will exceed $1.1 trillion in 2020.
The firm attributed the continued growth in large part to increased outsourcing to 3PLs in developed nations.
“Post-industrial societies have the largest 3PL revenues,” wrote A&A. “Developing countries tend to have lower 3PL revenues. The numbers reflect greater outsourcing to 3PLs in developed, more economically sophisticated countries.”
Broken down by individual company, DHL Supply Chain retained the top spot in terms of gross revenue with $27.6 billion, followed by Kuehne + Nagel with $22.6 billion and DB Schenker with $18.6 billion.
Revenues for U.S.-based 3PLs were also on the rise again last year, jumping 10.5 percent to $184.3 billion, significantly outpacing the 3.5 percent growth rate seen in 2016 and the 6.7 percent average annual pace since 2010, when the country was still recovering from the global financial crisis.
According to the report, U.S. 3PLs took in $12.8 billion in e-commerce revenues in 2017, and that figure will balloon to $20.9 billion in 2020, a “healthy” compound annual growth rate of 18 percent.
C.H. Robinson, XPO Logistics and UPS Supply Chain Solutions again ranked as the top three U.S. firms by revenue, raking in $14.9 billion, $9.5 billion and just shy of $8 billion, respectively, in 2017, good enough to land C.H. Robinson at number five on the global list, XPO Logistics at number eight and UPS Supply Chain Solutions at number nine.
Expeditors International ($6.9 billion), J.B. Hunt ($6.8 billion), Kuehne + Nagel Americas ($5.5 billion), DHL Supply Chain North America ($4.4 billion), Hub Group ($4 billion), Burris Logistics ($3.4 billion) and Ryder Supply Chain Solutions ($3.1 billion), which moved up one spot from 2016, rounded out the rest of the top 10 U.S.-based firms.
New entrants to this year’s top-50 U.S. 3PL list included U.S. Xpress ($661 million), Ingram Micro Commerce & Lifecycle Services ($800 million) and Universal Logistics Holdings ($993 million).
A&A said the growth was lead by dedicated contract carriage, with DCC revenues increasing 10.2 percent year-over-year, outstripping its compound annual growth rate of 7 percent since 1995, as “tight carrier capacity pushed shippers to dedicated contract carriers.”
The ever-tightening trucking market and resulting increases in truckload freight rates also helped drive growth in the domestic transportation management segment.
DTM gross revenues jumped 16 percent to $71.7 billion last year, but net revenues were up only 6.4 percent to $10.9 billion.
“The difference in growth rates reflects some gross profit margin compression due to quickly tightening truckload capacity in Q3 and Q4 of 2017, requiring freight brokers to pay rate increases to carriers faster than they can negotiate increases with shippers,” the report said.
"With carrier supply and demand smoothing out somewhat, 2018 looks like a strong year,” it added, noting increases of 14.9 percent and 10.1 percent in first quarter 2018 overall gross revenues and net revenues for C.H. Robinson, which accounts for roughly 14 percent of the DTM segment’s gross and net revenues.
A&A said new technologies are changing the game for DTM providers.
“We have seen optical character recognition coupled with applications such as HubTran utilizing machine learning to streamline back office document gathering processes eliminating significant amounts of data entry,” it said. “Visibility tools such as project44, FourKites, and MacroPoint, and proprietary applications developed by 3PL providers (3PLs) such as C.H. Robinson, Coyote, and TQL are reducing the need for manual check calls and the corresponding data entry. TMS (transportation management system) applications such as MercuryGate are continually adding functionality and improving on the user experience.
“We are also anticipating disruptive changes on the horizon from 3PLs adapting artificial intelligence (A.I.) over the next five years into core TMS functions automating carrier capacity tracking, shipper load requests, and load/carrier matching,” the report added. “A.I. will also play a positive role in customer service and back office functions. Staffing should be augmented from carrier procurement and back office functions to more customer facing positions.”
Global 3PL merger and acquisition activity cooled significantly in 2017 after a blistering two previous years, according to the report.
A&A recorded 18 3PL deals with a purchase price of more than $100 million in 2015, five of which exceeded $1 billion. Of the 11 M&A deals in 2016, three were valued at over $1 billion, with FedEx’s purchase of TNT Express purchase worth nearly $5 billion alone, the firm noted.
In 2017, there were just nine deals valued at over $100 million, none of which was worth more than $1 billion.
“Although there were fewer deals over $100 million, there was a fair amount of smaller or undisclosed merger and acquisition activity that occurred,” A&A said.
Private equity-owned 3PL GlobalTranz made four acquisitions during 2017 and is “actively looking at additional acquisition candidates that bring new capabilities in international ocean and air freight, intermodal transport and last-mile delivery,” according to the report. Other firms that were active in M&A included Radiant Logistics, C.H. Robinson and Kerry Logistics, as well as private investors Ridgemont Equity Partners, CI Capital Partners and the Jordan Company
A&A said in the report large deal activity could pick up in 2018, as XPO Logistics could be on the hunt for more acquisitions after a pretty quiet year by the fast-growing 3PL’s standards. XPO CEO Brad Jacobs said last year the company was back on the hunt, looking particularly to expand its presence in Europe, but would wait for the right opportunity.