Third-party logistics (3PL) providers offer their customers the opportunity to outsource some, or all, of their supply chain management functions. These might include warehousing, transportation, or even value-added services—such as goods procurement, kitting of parts or products, traceability and compliance, spare parts and production tooling supply, reverse logistics, repairs and more.
Over the past three decades use of 3PLs has increased continuously, according to Evan Armstrong, president of leading 3PL market research and consulting firm Armstrong & Associates. With the firm’s information frequently cited in media articles, publications and securities filings by publicly traded 3PLs, the Armstrong name is synonymous with 3PL trend spotting.
Among its many published reports, the firm annually produces “Trends in 3PL/Customer Relationships.” This report shares information about the top outsourcers to 3PLs, trends in service demand, market size and growth estimates by vertical industry segment. It assigns ratings for the 3PL relationships held by Fortune 1000 Domestic and Fortune 500 Global companies. It also breaks down vertical industries into sub segments, detailing the types of 3PL services they use.
How big is the 3PL market?
“In 2013 the overall global 3PL market grew to $703.8 billion. We expect it to expand to $727 billion in 2014,” says Armstrong, sharing some of the report’s highlights. “In terms of the U.S. domestic 3PL market, in 2013 it grew 3.2 percent, and the market finished up at $146.4 billion. We’re anticipating 5.2 percent growth to $154 billion by the end of 2014.”
And excepting the Great Recession years, 2009 and 2010, the U.S. 3PL market has continued to grow year-over-year, since 1996. “From that time through 2013, the compound annual growth rate of the 3PL market has been 9.6 percent,” he says. (Figure 1 illustrates that growth.)
The drivers of outsourcing have shifted over the past three decades, Armstrong notes. In the 1980s, companies mainly outsourced activities to reduce costs, focus on core manufacturing competencies, and gain operational efficiencies.
In the 1990s, offshoring of manufacturing to overseas locations added complexity to the supply chain. 3PLs responded by adding expertise and service offerings to manage import/export, global trade compliance, manufacturing support and final goods distribution. In turn, companies strengthened their existing 3PL partnerships, he says. It’s a trend that has continued into the 2010s, with reshoring/nearshoring bringing manufacturing back to American shores.
“When we look at the growth in the 3PL market, about half of the year-over-year growth tends to be from existing companies who are looking to have the 3PLs they currently work with take on additional functions,” Armstrong explains.
By Carol Miller