Chaos is good for third-party logistics providers
The global third-party logistics market is on track to exceed $1.1 trillion in 2022. That’s 10 percent of global logistics costs, according to consultants Armstrong & Associates, and a leap from the $802 billion recorded in 2016. Armstrong & Associates said in 2017, gross 3PL revenues in the United States increased 10.5 percent year-over-year to reach $184.3 billion and are expected to be close to $200 billion this year.
“A 3PL’s job is to solve chaos for their customers,” said Kevin Sterling, a transportation analyst with Seaport Global Securities. When supply and demand are in balance, as they were in 2015 and 2016, it’s not as lucrative an environment for 3PLs because shippers are more inclined to say, “Why do I need a 3PL? I can just go to an asset-based carrier,” Sterling said. But this has been a good year for the 3PL business because “truck capacity is tight, there’s intermodal service issues, intermodal capacity is tight, supply chains are speeding up to keep up with the Amazons of the world,” he said. Sterling did note 3PLs also can do well when there is an excess of capacity and truckers turn to them to help find freight.
In the tight freight market this summer, 3PLs had the “ability to thrive because shippers need access to capacity,” agreed Mark Christos, vice president of transportation at Matson Logistics. The average truckload carrier has less than 50 trucks, but a 3PL like Matson deals with 20,000 motor carriers and can help shippers locate the capacity they need. The ocean shipping business also has had a roller-coaster year, with overcapacity in the first half followed by sharply higher rates and capacity withdrawals so severe that some shippers in Asia found U.S.-bound cargo being rolled to later voyages in the late summer.
With sharp increases in rates for domestic transport, “customers are feeling the pain of not having an effective network management program in place. They’re asking for help in visibility, automation, procurement, contract management and ultimately how do you optimize the entire network,” said Frank McGuigan, chief executive officer of Transplace, a non-asset 3PL based in Frisco, near Dallas. “We don’t see 2019 being a layup year either,” he said. Even if not as strong as this year, the economy likely will remain strong, and “there are still some fundamental issues in the industry as it relates to drivers, capacity, etc. I don’t see fuel significantly dipping as well.”
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