Armstrong’s 3PL report calls 2016 ‘mediocre’ for U.S. airfreight

While the third-party logistics (3PL) market had a “mediocre” year in the United States, global 3PL revenues reached US$802 billion in 2016 and are on track to exceed $962 billion in 2020, according to the latest 3PL report by market research firm, Armstrong & Associates.

The report, titled “Third-Party Logistics Market Results and Trends for 2017,” said that 3PL net revenues across the U.S. sector grew by 2.1 percent over 2015 to US$73.5 billion, while overall gross revenues increased by 3.5 percent to $166.8 billion over the same period.

Also, after major merger and acquisitions (M&A) deals dominated the U.S. 3PL market from mid-2014 through 2015, the pace “slackened significantly” in 2016, the report said, with only a handful worth noting. The largest M&A deal, Armstrong said, was the FedEx/TNT Express merger in the second quarter, followed by DSV’s acquisition of UTi Worldwide in January and HNA Group’s purchase of Ingram Micro for US$6 billion.

The international transportation management (ITM) sector, the report found, grew by a modest 2.6 percent pace in 2016, in terms of gross revenue, but net revenue and earnings before interest and taxes (EBIT) both dropped by 1.9 percent and 7.6 percent, respectively. This international sector was “negatively impacted by too much air and ocean capacity in the market,” the 3PL report stated. However, the growth of e-commerce and pharmaceutical traffic in 2016 helped boost annual airfreight volumes – a trend that has carried over into 2017.

CEVA’s ITM segment, Armstrong reported, was down 11.6 percent in both gross and net revenue, while Switzerland’s Kuehne + Nagel had “mixed results,” with gross revenue down 6.1 percent, compared to 2015, and net revenue rising 5.4 percent. Meanwhile, GEODIS America increased its gross revenue to $502 million and net revenue to $98 million by “cross-selling its expanded service offering,” the report found.

On the warehousing side of the market, Armstrong reported that value-added warehousing and distribution (VAWD) increased 1.9 percent, due to “tight capacity and warehouse utilization.” The VAWD is currently dominated by 10 companies with 50 million square feet of warehousing space or more, the study said. The largest, DHL, has 248 million square feet of warehousing space, which is nearly five times as much space as that held by the No. 10 company, DSV, at 50 million square feet. If Amazon is considered a 3PL, it would currently be No. 2 on the warehouse space list, with 160 million square feet of space, but Armstrong noted that Amazon “is a mix of private and third-party logistics space.”

Trucking firm Ryder did well in the VAWD segment in 2016, with a 5,9 percent rise in gross revenue and 7.6 percent net revenues over the previous year. VAWD provider GENCO, which is now part of FedEx and rebranded as FedEx Supply Chain, saw a 7.1 percent decline in gross revenue and a 7.3 percent drop in net revenue last year, while EBIT fell by 8 percent, compared to 2015.

Armstrong also noted that several Japanese companies, such as Nippon Express, NYK Line and Kintetsu, expanded their U.S. operations. China was also a major player in the Asia-U.S. market, as companies such as Dimerco Express, Kerry Logistics and CJ Logistics established operations in the U.S. “Structurally, these companies are similar to Japanese companies,” Armstrong found. “CJ Logistics, for example, is very large and a key player in its home country where it provides parcel, trucking and logistics services. It has over 100 warehouses in China. Thirteen percent of its business is in the Americas. It has expanded significantly since 2005 through acquisitions and is hunting for major expansion in the Americas.

“Sinotrans was the initial large entrant from China,” the report continued, “but as market controls were loosened, mid-sized companies like Scanwell and DeWell followed Hong Kong companies like Rising Sun and Horizon into the market.”

Meanwhile, DHL, Kuehne + Nagel’s Blue Anchor and other Germany-based freight forwarders also expanded into the Asia-U.S. lane. U.S.-based Expeditors International, however, led the pack in TEUs (twenty-foot-equivalent units) in maritime cargo and also in airfreight tonnage in this lane.

The Armstrong report also noted that, thanks to the North American Free Trade Agreement (NAFTA) in 1994, there are now more than 30 automotive plants located in Mexico, and tier-one suppliers have relocated to the country to meet the demand. “The majority of cars made in Mexico are shipped to the U.S.,” the study found, with automotive parts flowing south with a 40/60 balance ratio.

“Post-industrial societies have the largest 3PL revenues,” Armstrong concluded. “Developing countries tend to have lower 3PL revenues. The numbers reflect greater outsourcing to 3PLs in developed, more economically sophisticated countries.”

For more on the complete report by Armstrong & Associates, please click here.