Evan and Dick Armstrong

January 4, 2010

For the first time since Armstrong & Associates, Inc. began tracking the United States third-party logistics (3PL) market in 1995, the deepening economic recession of 2009 created the first year over year decline in 3PL market revenues. Total 2009 3PL segment gross revenues fell an estimated 15.2% and net revenues were down 6.5% from 2008. (Net revenue equals gross revenue minus purchased transportation.)

2009 did have a positive side; 3PL customers continued to increase their use of 3PLs as they focused on core competencies outside of logistics. This provided some underlying structural strength to the 3PL Market; however, it was greatly overshadowed by dramatic cyclical drops in transactional international and domestic transportation shipment volumes. The recessionary volume drops directly translated into the significant gross and net revenue declines shown within the transportation 3PL segments shown in the table below.

Table 1.  U.S. 3PL 2009 Revenue Declines from 2008 (US$ Billions)

¹ Total 2009E gross revenue (turnover) for the 3PL market in the U.S. is estimated at $108.1 billion. $3 billion is included for the contract logistics software segment.

To produce our year end estimates, we analyzed 3PL reported third-quarter financial results and the results from our August 3PL survey. International transportation manager Expeditors International’s third-quarter (Q3) gross revenue was off 33.7% and its net revenue declined 19.3% versus Q3 of 2008. Domestic transportation manager C.H. Robinson Worldwide reported a gross revenue decline of 15.6% for Q3 and had a gain in net revenue of 0.3% compared to Q3 of 2008.

In A&A’s August survey, 72% of 3PLs surveyed reported gross revenue decreases and 24% reported increases in gross revenue versus the first half of 2008. All of the 3PLs reporting increased gross revenues have core business in value-added warehousing and distribution (VAWD). GENCO led this group with a 12% revenue increase for the year.

Consistent with the overall revenue numbers, the VAWD segment did better than the transportation management and dedicated contract carriage segments through the first eight months and is estimated to generate a 1.7% net revenue increase for 2009.

Surveyed 3PLs reported significant variations in revenue declines by vertical industry. Automotive logistics was hit harder by the recession than other areas. Automotive vertical leaders Penske Logistics and Ryder SCS both experienced large drops in revenue.  Ryder SCS reported drops of -29% and -28% in gross and net revenues respectively for the first half of 2009. Automotive 3PL gross revenue was down by 18.5% versus 2008 in our August survey.

While retail was off 11.3% as consumer spending dried up, basic consumer staple industries in the food & beverage, consumer goods, and healthcare verticals showed only single digit declines. Industrial industry companies were off 6.3% in 2009.

Table 2.  3PL Vertical Industry Revenue Declines from 2008

2010 shines its light at the end of the tunnel…

From our frequent conversations with 3PLs, all indications are that 2010 will be an improvement over 2009. 2009 second half airfreight volumes have improved. Ocean freight volumes are anticipated to turnaround somewhere in mid-2010, and domestic transportation management seems to have put in a bottom. Value-added warehousing also looks to build upon its slight net revenue increase in 2009 as inventories are replenished and product demand increases. Therefore, we are estimating that U.S. 3PL segment revenues will grow 7.2% in 2010 and segment net revenues will expand 3.3%. Net revenues will show slower growth versus gross revenues due to timing differences; tightening carrier and ocean shipping capacity and corresponding rate increases often occur in advance of 3PLs increasing customers’ transportation rates. The 3PL segment estimates are shown in the table below. 

Table 3.  U.S. 3PL 2010 Revenue Growth Estimates from 2009 (US$ Billions)

¹ Total 2010E gross revenue (turnover) for the 3PL market in the U.S. is estimated at $115.7 billion. $3 billion is included for the contract logistics software segment.

The chart below trends the U.S. 3PL market gross revenues (turnover) since 1996. The overall compound annual growth rate (CAGR) from 1996 through 2008 was 12.5%. With the significant drop in revenues in 2009 and moderate rebound expected in 2010, the anticipated CAGR from 1996 through 2010 is 9.9%.

Chart 1.  U.S. 3PL Market 1996 – 2010E (US$ Billions)

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