2021 was an unprecedented year for the third-party logistics industry (3PL).
Increasing volumes and emphasis on outsourced logistics to manage ever-changing inventories led to 2021 being the most profitable year ever for the trillion-dollar industry, according to a report from Armstrong & Associates Inc: the number one research and consulting firm in the industry. According to Evan Armstrong, firm president, the U.S 3PL industry is expected to keep growing with an estimated $414.1 billion in 2022 gross revenue, a 22 percent increase from the year before. Net revenue is expected to reach $140 billion, a 17% increase.
One of four major subgroups, Armstrong’s domestic transportation management (DTM) subgroup will report a 25% gross revenue increase to $174.6 billion. The DTM is the largest U.S subgroup tracked by Armstrong. The three remaining subgroups, “international transportation management (ITM) comprising air and ocean freight forwarding, customs brokerage and related value-added services, warehousing and distribution, and dedicated contract carriage” (Solomon 2022), all reported double-digit increases in gross and net revenues.
Armstrong has said that the growth recorded for the first half of the year has been surprising, and should start to normalize as supply chain bottlenecks ease. “2023 should see some substantial leveling off if it happens.”
The 3PL industry in 2021 has experienced never seen numbers in its 27-year history. ITM, DTM, and the warehousing and distribution subcategory all reported significant increases in gross and net revenue. With an “unheard-of” 75% increase in gross revenue to $122.4 billion, the ITM sector was led by rising ocean and air freight rates. Net revenue also grew 44.6% to $35.6 billion, in spite of tight capacity and high spot market rates.
This surge in revenue and pricing was not just limited to the U.S Global revenues, which reached $1.4 trillion in 2021, a “41.8% year-over-year gain”, far more than the 7.7 year-over-year increase from 2019 to 2020. The ITM subgroup led all groups with a 60.8% year-over-year gain.
These rising trends have not gone unnoticed by investors. Last year, the 3PL industry saw 25 M&A (mergers and acquisitions) transactions valued at more than $100 million, three times more than the year before. Armstrong says these deals will continue throughout 2022 but are likely to be strategic with 3PL companies acquiring other 3PLS. As a result of historically low capital costs and abundant liquidity, many deals will be financed with equity rather than debt: high-interest rates prove not to deter. One of the unknowns will be truckload rates. Spot rates are currently below their 2021 highs and contract rates. Armstrong expects contract rates to remain increased deep into 2023, and for “spot rates to settle at levels consistent with their five-year averages.” (Armstrong 2022) Recommendations for 3PL clients to finalize contracts with shipping companies as soon as possible. “We will see a lot of renegotiating in the fourth quarter and into the first quarter of 2023.,” Armstrong says.