Armstrong & Associates, Inc.
100 Business Park Circle, Suite 202
Stoughton, WI 53589
(800) 525-3915

U.S. 3PL Market Grows 7%: Outpaces Economy

STOUGHTON, WI – For the eighth consecutive year, U.S. growth in third-party, contract logistics has exceeded growth in the U.S. economy. Results for 2002 show increases in turnover, net revenues and net income. Turnover increased by 6.9% and net revenues by 7%. Net income increased from 1.7% in 2001 to 3% in 2002.

Results for individual companies varied widely. Our estimate for FedEx Services indicates a 40% shrinkage in contract logistics in FY 2002. At the same time, UPS Supply Chain Solutions divisions increased significantly. UPS Logistics was up 39% in net revenue, while UPS/Fritz increased by 28%. The FedEx and UPS contract logistics results reflect the strategic plans of the two companies. UPS, in a partial re-branding, is giving more emphasis to non-package operations. FedEx continues to devalue operations that do not put shipments exclusively into its trucks and airplanes.

The most profitable 3PLs continue to be transportation managers. C.H. Robinson, Expeditors and Landstar Logistics all had double-digit, after-tax net margins. All three of these companies had significant net revenue growth again this year. While turnover increased for the U.S. domestic transportation segment lead by Robinson and Landstar, net revenues for the segment were flat because 3PLs with leasing and IMC parent companies had reduced revenues.

The value-added warehousing 3PLs represented by Exel, CAT Logistics and UPS Logistics showed solid growth of 10.4% in net revenues. This segment grew by 11.5% in 2001. Most significantly, VAWD 3PLs improved their net income margins by from .7% to 1.7% in 2002. This segment has been plagued by under pricing of its value-added services. Tibbett & Britten has eliminated some unprofitable business. Exel and other majors are taking steps to improve profitability.

The freight forwarding 3PL segment net revenue grew at 5.7% following 6% growth in 2001. Net profitability margins improved from 2.8% in FY 2001 to 4.8% in 2002. This improvement is due to a narrowing of losses at Emery, the addition of UTi Worldwide and a realistic assessment of the net revenues of DHL Danzas in North America. Deutsche Post World net, the parent of DHL Danzas claims to use a “net revenue” model but allows purchased transportation to be incorporated in “net revenue.” As a result, we continue to fine tune our DHL Danzas estimates..

Dedicated contract carriage net revenue increased by 5.7% in 2002 after a flat 2001. Leasing company related dedicated carriers continued to lose market share. Cardinal, J.B. Hunt, Schneider, Swift and Werner all had double-digit growth. These dedicated operations spring from truckload carrier backgrounds and have the sustained advantage of relying on their parent company trucking networks to reduce backhaul miles and costs.

About Armstrong & Associates: Armstrong & Associates, Inc. is a supply chain management consulting firm specializing in market research, mergers and acquisitions and outsourcing. Armstrong & Associates publishes “Who’s Who Logistics? Armstrong’s Guide to Global Supply Chain Management.”

For more information, contact: Richard Armstrong (800) 525-3915 or e-mail
Source: Armstrong & Associates, Inc.
100 Business Park Circle, Suite 202
Stoughton, WI 53589
Fax: (608) 873-5509