How big is the logistics industry?

Intermodal yard

That’s a big question with many moving parts – literally.

The first part of the question is to define logistics. The definition could vary vastly depending on who is asked and what their focus may be. In short, logistics encompasses the physical process of accumulating resources, the transportation or positioning of those resources and the final distribution of resources.

In recent times, the term became commonplace in the military, describing the efforts involved in the acquisition, storage and shipment of supplies, equipment, arsenal, munitions, encampments and soldiers.

What encompasses logistics can be very broad as well and covers essentially everything from a resource’s origin to a finished good’s destination. Most supply chains are highly integrated with varying degrees of automation allowing goods to move seamlessly from mode to mode until destination. Logistics as an industry includes the sourcing of goods, manufacturing, inventory, handling/sortation, transportation, storage/warehousing, etc. Further, logistics expense lines can include IT, in terms of the exchange of information and data, as well as the cost of security.

Logistics can be as simple as a transaction wherein a shipper makes its own product and ships it directly to its customer or more complex involving many layers of handlers in third-party logistics provider (3PL) and brokered transactions. The number of parties on any shipment may extend well beyond just a third party, including 4PLs and on up.

How big is the industry?

Estimates of the size of the global logistics industry range from $8 trillion to $12 trillion annually. The rule of thumb many forecasters use is a percentage of GDP.

In the U.S., some estimate that up to 10% of GDP is attributed to the logistics industry in any given year. Based on economic activity in 2019, the U.S. logistics market is closing in on the $2 trillion level.

Globally, many believe that the logistics market represents approximately 12% of the entire world’s GDP. The disparity in the percentage of GDP used to predict the size of the logistics market has been attributed to the inefficiencies that exist in supply chains in many regions outside of the U.S., creating an elevated cost structure by comparison.  

The global logistics market was $9.6 trillion in 2018, according to research and consulting firm Armstrong & Associates Inc. Trucking accounted for 43% of total logistics costs globally. The costs associated with storing inventory represented one-third with non-trucking modes – maritime, rail and air – under 14% of the total.  

Source: Armstrong & Associates Inc.

The firm is forecasting total global logistics costs to continue to grow at a more than 5% compounded annual growth rate through 2023. The analysis calls for the total market to be more than $12 trillion in 2023.

Other intelligence firms add in costs associated with transportation infrastructure, like roads, ports, rail and airports. Including these investments, some estimate the size of the global logistics industry will exceed $15 trillion by 2023.

What about the U.S.?

In the U.S., 2018 business logistics costs were more than $1.6 trillion, according to data provider Statista. Nearly two-thirds of the cost total was related to transportation, with inventory costs accounting for 30% of the total.

Source: Statista

By mode, trucking dominates transportation spend in the U.S. Inclusive of private fleets and less-than-truckload (LTL), the trucking market is close to $800 million. Through the rise of e-commerce, parcel transportation weighs in as the second-biggest mode behind trucking. Rail, including intermodal rail, comes in at third, accounting for 8% of U.S. freight transportation revenue in 2018.

Source: American Trucking Associations, Stifel estimates and company data

The outsourcing of inventory, distribution and fulfillment to 3PLs has accelerated significantly, especially in the tech and auto sectors. The increased reliance on third parties has resulted in the U.S. 3PL market growing to $213.5 billion in gross revenue in 2018, according to Statista. That is nearly double the level reported in 2009 by the industry.

The U.S. has the largest 3PL market of any one country. However, the Asia-Pacific region has a 3PL market that is roughly 50% larger than that of North America.

In total, global 3PL markets produced $950.7 billion in revenue in 2018.

Source: Statista