The third-party logistics (3PL) industry experienced double-digit growth both domestically and internationally last year, largely on continued expansion in China and the Asia-Pacific region, according to a report released in April 2007 by supply chain management firm Armstrong & Associates. The findings show gross revenues for the global 3PL market reached $391 billion in 2006, with the United States comprising $113.6 billion (a 9.5 percent increase) and European 3PLs $139 billion of the total.

Last year was the first time gross revenues for the U.S. broke $110 billion.

However, notes Logistics Management this month:

These are the kind of numbers that other sectors of the logistics industry — and most other industries and businesses — only dream about. But for U.S.-based 3PLs, 2006 represented a somewhat disappointing slip below the double-digit increase in total turnover they've enjoyed over the last decade, a slight decline which is being attributed largely to the stalling of the domestic economy in the last quarter of 2006.

Notably, the 3PL sector with the highest gross revenues and percentage of growth was international transportation management, which was up 17.7 percent in 2006 to $42.4 billion, according to Logistics Management:

Sources agree that the greatest profit potential for 3PLs will lie in international markets as manufacturers' continue offshore outsourcing and the consequential requisite expansion of globalized supply chains continue to increase.

"Most of the growth in the 3PL arena will come from doing business abroad, and we don't see that changing anytime soon," says Evan Armstrong, president of Armstrong & Associates. "The international management transportation segment had a net revenue gain of 18 percent last year. If you break down the global 3PL market in terms of gross revenue, it comes to $139 billion for Europe, $37 billion for Japan, and $30 billion for China, with the rest comprising other geographic areas and individual countries," adds Armstrong. "Most major global players saw their significant gains in the Asia/Pacific to U.S. trade lanes."

Logistics Management reports:

This will be the 3PL growth model for the foreseeable future, according to most observers, but it is not an easy market to break into. It is both demanding and unforgiving, and both shippers and 3PLs have to keep this in mind.

The 3PL company seeking to expand its operations overseas has to establish its presence, staff the organization with local professionals, and demonstrate its core competencies in the given foreign marketplace, Brooks Bentz, partner at consulting firm Accenture, tells the logistics pub. If they expect to get the shipper's business, they have to understand the psychology and the mindset of the people on the ground as well as the intricacies of various country-specific commercial and regulatory issues.

Considering that a fifth of the world's population is in China, which has "a virtual lock on most of the planet's manufacturing outsourcing," the Asian country is expected to remain the major focal point of global 3PL expansion efforts for some time to come. Yet industry sources have some cautionary observations. As the country's economy has grown, so have labor rates and inflationary pressures; not to mention infrastructure issues. This has caused a number of U.S. and European manufacturers to seek lower-cost production sites elsewhere in Asia, for the most part in Vietnam and India, both of which are hot prospects. (See: Asia's Major Players)

The pressure to outsource has never been greater, yet the emergence of hundreds of providers of 3PL services has placed the question of "if, when and how" to use 3PL services and assets squarely in front of every large, medium and small logistics organization, we reported last month.

We noted in April that most customers are looking to the 3PL sector for leadership, functionality and operational capabilities, confirmed by World Trade magazine. Because of concerns that improvement is needed, 3PLs' IT capabilities are expected to become even greater differentiators of 3PLs than they are today.

As World Trade recently acknowledged, "Everything in logistics now has a time dimension that didn't exist before, and the complexity of shipping has increased dramatically."

See also:

The Big List of Logistics Quick Tips

Shipping: What to Look For in 2007 and Beyond

Is the Promised Land Offshore?

Asia's Major Players

Resources

11th Annual Third-Party Logistics Study 2006
Georgia Tech, Capgemini, DHL and SAP

Logistics sector continues to grow
China Daily, April 25, 2007

U.S. and Global - 3PL Financial Results – 2006
Armstrong & Associates, Inc.

Global 3PL Growth Taking Off
Logistics Management, June 1, 2007

Proceed with caution: 2007 rate outlook forecast update
Logistics Management, June 1, 2007

10 Trends That Will Change Your Supply Chain
World Trade, Jan. 1, 2007

Global Logistics Solutions: A Guide to the Problems Shippers Face
World Trade, May 1, 2007