BY MARK B. SOLOMON, SENIOR EDITOR
DEDICATED/CONTRACT CARRIAGE
transportationreport
FOR MORE THAN 30 YEARS, NONASSET-BASED THIRD-party logistics service providers (3PLs) have been on the
right side of virtually every meaningful trend. A multidecade
buyer’s market for truck capacity has given 3PLs enormous
pricing power and the flexibility to match carrier supply with
shipper demand. Producers, recognizing they weren’t logisticians, began offloading many logistics-related functions to
3PLs. An increase in offshore production required a deeper
understanding of long-distance supply chains and regulatory
compliance, responsibilities that companies were all too
happy to relinquish to their 3PL partners. As technology
requirements expanded, shippers turned to 3PLs to manage
IT networks and build value through automation.
All this converged to usher in what has become a golden
era for 3PL services. Since 1996, domestic 3PL revenue has
grown at a 10-percent compounded annual rate, according
to Armstrong & Associates, a consultancy. Armstrong estimates U.S. 3PL revenue will exceed $150 billion this year,
which is five times higher than in 1996. Over the past 17
years, only once—in recession-wracked 2009—did the
domestic sector report year-over-year declines in revenue,
according to the firm. Tompkins International, another
consultancy, expects 3PL growth in 2013 to range between
7 and 10 percent, three to four times that of growth in gross
domestic product. Since January 2000, equity values of
publicly traded 3PLs have outperformed the Russell 2000, a
diversified basket of smaller-capitalization stocks, by 400
percent, says Robert W. Baird & Co., an investment firm.
3PL use today appears as strong as ever. Of the top 100
firms in the Fortune 500 index, 96 use a 3PL, according to
Armstrong data. Of the remaining 400 companies, 80 percent engaged a 3PL in 2012, up from 65 percent in 2008,
according to Armstrong.
The factors that goosed 3PL demand initially show little
signs of abating. The question is who will reap the spoils of
future growth. Until now, the nonasset-based players have
been the prime beneficiaries. But there are some who argue
the pendulum could be swinging toward providers with
physical assets that can also bring a nonasset-based component to the table.
According to those who share that view, the catalyst will
likely be a capacity crunch brought on by the chronic shortage of drivers and the reluctance of fleet operators to invest
in equipment that will boost capacity rather than just replace
aging iron. Baird estimates that trucking supply, which grew
3 percent a year from 1992 to 2006, has shrunk by 10 percent
since then as a freight recession and the subsequent economic downturn caused shipper demand to contract. Carriers
struggling with the subpar economic recovery and a host of
escalating costs from fuel to tires to engine replacements,
driver availability, and government regulations have spent
the past five years playing it safe. Benjamin Hartford, lead
Being asset-poor has long been the path to
riches. But as truck users face what may be a
lengthy period of supply contraction, will a new
type of intermediary come to rule the roost?
A new shade
of 3PL
