The landscape of third-party logistics (3PL) in the United States has experienced a notable downturn, as highlighted in the latest report from Armstrong & Associates. The findings present a stark contrast to the market’s recent boom, revealing a significant decline in revenues for 2023.
Revenue Trends and Market Overview
According to the report titled “Divergence—Latest Third-Party Logistics Market Results and Outlook,” the U.S. 3PL market saw net revenues plummet by 12.8% from 2022 to 2023, settling at $129 billion. Gross revenues faced an even steeper decline, falling 26.1%, resulting in total revenues of $299.5 billion for the year. This downturn marks a significant departure from the impressive growth rates of previous years, where revenues soared by 24% in 2022 and an astonishing 48.1% in 2021—record highs since data collection began in 1995.
An Unexpected Shift
The report attributes these revenue declines primarily to two segments of the 3PL market: non-asset-based international transportation management (ITM) and domestic transportation management (DTM). After experiencing sharp increases during the pandemic, these sectors are now normalizing in what Armstrong describes as an ongoing post-shutdown adjustment. In contrast, asset-based transportation sectors, such as Dedicated Contract Carriage (DCC) and Value-Added Warehousing and Distribution (VAWD), have shown resilience and even growth during this period.
The Impact of Inflation and Demand
Logistics costs surged dramatically during the COVID-19 pandemic, with both 3PL revenues and expenditure seeing unprecedented increases. However, as the pandemic’s effects began to wane, demand for 3PL services stabilized in the latter half of 2022. This adjustment coincided with tightening monetary policies aimed at curbing inflation, leading to decreased transportation rates and a rebalancing of supply and demand. The Federal Open Market Committee’s efforts to maintain economic stability have contributed to a more manageable logistics landscape, although the repercussions of these changes are evident in the revenue figures for 2023.
Domestic Transportation Management Declines
Domestic transportation management experienced a severe hit, with gross revenues falling to $123.6 billion—a 22.4% decrease compared to the previous year. This segment, encompassing freight brokerage and managed transportation services, saw net revenue drop by 25.8% to $19.6 billion. Factors such as consumer hesitance due to inflation, declining imports, and reduced truckload demand have significantly affected this sector’s performance.
International Transportation Management Struggles
The ITM segment faced even more daunting challenges, with gross revenues plummeting to $74 billion, a staggering 49.3% decline. Net revenue also fell by 34.2%, totaling $28 billion. The report notes a dramatic shift in the ITM environment since mid-2022, as ocean freight rates from Asia to the U.S. reverted to pre-pandemic levels. The decline in shipping rates reflects a broader trend of disinflation within the U.S. logistics market, influenced by moderating consumer demand.
Resilience in Asset-Based Transportation
Amid these declines, certain sectors have managed to thrive. Dedicated Contract Carriage (DCC) reported gross revenue of $29.7 billion, marking a slight increase of 0.7%. This growth can be attributed to shippers looking to secure capacity after the turbulent fluctuations of 2021. Enhanced recruitment efforts and competitive wage increases have also contributed to DCC’s relative stability.
Value-Added Warehousing and Distribution (VAWD) demonstrated similar resilience, with gross revenues climbing to $68.1 billion, an increase of 1.6%. Armstrong highlighted that many VAWD providers faced full warehouses in 2022 and were actively seeking additional space in early 2023. The total U.S. warehousing inventory rose by approximately 14% from 2021 to 2023, signaling ongoing demand for warehousing solutions.
Looking Ahead: Opportunities for Shippers
In an interview, Evan Armstrong, president of Armstrong & Associates, emphasized the importance of adaptability for shippers navigating this shifting landscape. He noted that while last year’s declines are significant, 3PL revenues still exceed pre-pandemic levels. As the market stabilizes, shippers have an opportunity to negotiate better terms, particularly in warehousing contracts.
Armstrong advises shippers to consider securing three-to-five-year warehousing agreements now that lease rates have softened. With e-commerce continuing to grow, locking in favorable terms can provide a competitive edge.
Conclusion: A Cautious Optimism
As we look toward 2024, there are signs of hope within the 3PL sector. Despite the challenges faced in 2023, the fundamentals of the economy and logistics are showing signs of stabilization. With a projected revenue rebound to $311.9 billion, the 3PL market could once again flourish. In this evolving landscape, shippers who remain strategic and proactive will be well-positioned to thrive in the coming years.
- U.S. 3PL revenues declined by 12.8% in 2023, reaching $129 billion.
- Domestic transportation management saw a 22.4% drop in gross revenue.
- ITM sector faced a staggering 49.3% decline in gross revenues.
- DCC and VAWD segments demonstrated resilience, showing slight gains.
- Shippers are advised to secure long-term warehousing contracts amid a stabilizing market.
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