Third-party logistic Companies are in the Midst of a Rapid and Global Expansion.

Implications: As companies continue to find it more advantageous to move from transaction strategies to relationship based alliances such as partnerships, third party logistics companies find themselves in the midst of a rapid and global expansion. And although in an earlier post titled, "Carrier Owned and Operated 3PL’s are One Method of Serving Intermodal Operations", where I discussed the development and acquisition of third party logistics companies by US based Carriers, this post will categorize third party logistics providers and identify leaders within each category.  

Analysis:  A friend of mine, who happens to be extremely knowledgably in the third party logistics market and I were discussing the evolution of third party logistics over the last ten years. Originally finding a market niche with midsize companies who were not quite big enough to develop their own logistics program, third party logistics companies were focused solely on profit margin and often failed to meet the service requirements of their customers. My friend argued that was not the case today. He was right!  

In the last ten years, several reputable logistics companies have undergone a great many changes in such areas as company size and makeup, services offered, geographical reach, and IT support. And as sited by the source article, many 3PL services provide a variety of distribution and logistics services including freight forwarding, home delivery, pallet distribution and warehouse and value added services, as well as the traditional truck, intermodal, ship and air services provided in the past. By initiating new services or develop operating alliances with other companies, third party logistics companies are producing a unique and holistic approach to supply chain management that is opening overseas markets, providing knowledge, filling geographic and service requirements, while developing partnerships requiring the trust and collaboration needed in today’s dynamic environment.  

In a report titled, "Hanging Tough; U.S. and Global Third-Party Logistics Market Financial and Acquisition Results for 2007and Projections to 2010" developed April, 2008 by Armstrong Associates, Inc; they identified the following four market segments within the third party logistics industry.  

Domestic Transportation Management: With gross revenues of $34.6 billion, net revenue growth of 8.0% and an increase of 13.4% in profit margin for 2007, C.H. Robinson, Inc dominates this segment with 34% of net revenues and 66% of EBIT (earnings before interest and tax). Other smaller but highly profitable Domestic Transportation Management companies are BNSF Logistics, Hub Group and Werner Enterprises.  

International Transportation Management: With gross revenues of $45.2 billion, net revenue growth of 9.5% and an increase of 5.4% in margin for 2007, The most profitable 3PLs were Expeditors, Kuehne + Nagel, and DHL Global Forwarding and UPS, which continues to be the most unprofitable.  

Dedicated Contract Carriage: With gross revenues of $11.6 billion, net revenue growth of 2.7% and an increase of 4.4% in margin for 2007, J.B. Hunt and Ryder System’s Inc. dominate the segment.  

Value-Added Warehousing and Distribution: With gross revenues of $27.6 billion, net revenue growth of 7.7% and an increase of 3.6% in margin for 2007, has a mix of owned, asset and leased, non-asset buildings and is regularly less profitable than the transportation based 3PL segments.  

With $122.0 billion in 2007 revenues, despite a freight recession, U.S. third party logistics companies are expected to exceed $150 billion in total revenue in 2010, with the greatest growth in non-asset related segments. From 2006 to 2007 Menlo and Transplace reported the greatest growth and the least growth was recorded by YRC.