Sourcing strategies: Consultants confirm dismal 3PL earnings for 2009

As most supply chain executives suspected, domestic revenues for the third-party logistics (3PL) market sank significantly last year.

"It wasn’t pretty," said Evan Armstrong, president of Stoughton, WI-based Armstrong & Associates. In an interview with SCMR, supply chain consultancy executives said the only thing the top players had in common was that "none made much money."

Hardest hit was the International Transportation Management (ITM) segment with gross revenue (turnover) falling 23.7 percent as total U.S. import and export ocean TEUs (twenty-equivalent units) dropped 12.3 percent. Airfreight metric tons dropped similarly with reductions at JFK and the Chicago airports exceeding 20 percent. As prices dove in the face of soft demand, net revenues (gross margins) shrank by 18.9 percent. Expeditors International, the largest U.S. freight forwarder, saw gross revenue decrease 27 percent and net revenue decrease 14 percent.

The good news is that first quarter 2010 results have included double digit improvements in ITM and other 3PL market segments as the economy steadily recovers.

Overall, U.S. 3PL market gross revenues decreased 16 percent in 2009 dropping to $107.1 billion. Dedicated Contract Carriage (DCC) fell 16 percent. Domestic Transportation Management (DTM) was down 15.1 percent in gross revenue and 11.4 percent in net revenue. Value-Added Warehousing and Distribution (VAWD) suffered with only single digit reductions.

The VAWD segment’s gross and net revenues were both down 5.3 percent and 6.9 percent respectively compared to 2008.

Net income margins dropped in all categories. The ITM segment was the least affected with a 6.3 percent drop. VAWD took the biggest hit with a 25 percent drop. Overall, 3PL net income margin dropped from 5.3 percent in 2008 to 4.7 percent in 2009.

"We anticipate a significant recovery for 3PLs in 2010," said company chairman Richard Armstrong, co-author of the latest report. "Many first quarter results suggest a recovery that will restore the third-party logistics market to 2007 levels, and we predict 13.4 percent growth in gross revenue and 8.3 percent growth in net revenue in third-party logistics for 2010."

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