US 3PL industry to post revenue drop in 2020, Armstrong predicts

The U.S. third-party logistics (3PL) industry will post a drop in gross revenues in 2020, its second consecutive year of declines coming off a banner decade, according to a study by Armstrong & Associates Inc., a consultancy which closely tracks the U.S. and global 3PL markets.

For 2020, gross revenues for U.S.-based 3PLs are expected to hit $208 billion, a nearly $5 billion fall-off from 2019 levels of $212.8 billion. The full-year 2020 projections, if accurate, would represent a modest snapback in the second half of the year after a 3% year-on-year drop during the first half, according to Armstrong data published late last week. The first half of 2020 included the worst of government-ordered lockdowns in an effort to slow the spread of the novel coronavirus. First-quarter activity was already weak as the industry extended its decline from 2019, the firm said.

Net revenues — defined as gross revenues minus the cost of purchased transportation — are expected to post a 0.7% increase in 2020, according to the report. Net revenues in 2019 rose 5.9% from 2018 levels, based on the data.

The main risk to Armstrong’s full-year projections would be a return to widespread economic lockdowns, a scenario unlikely to materialize, Evan Armstrong, the firm’s president, said in an interview Tuesday. Gross revenues in 2021 should rise by low- to mid-single-digit levels as the U.S. economy “gets back to growth” next year, Armstrong said. The 2022 outlook looks better still, he added. 

Risks to the firm’s 2021 and 2022 forecasts include worsening geopolitical tensions, especially between the U.S. and China, and the impact of possible tax increases to help reduce the enormous budget deficit resulting from the billions of dollars in fiscal stimulus to support the U.S. economy during the pandemic, he said.

U.S. 3PL gross revenue growth doubled from 2009, which marked the depths of the Great Recession, through 2018, according to Armstrong data. Gross revenues surged an unprecedented 15.8% in 2018 as providers benefitted from a solid economic environment and inventory pull-throughs ahead of the Trump administration’s tariff increases on Chinese imports that took effect in early 2019. By contrast, the impact of the tariffs and the reduction in imports that might otherwise have entered U.S. commerce in 2019 led to the subsequent weakness in 3PL results last year.

The report divides the U.S. 3PL market into four segments. The largest, domestic transportation management, reported $83 billion in 2019 gross revenue. That was followed by international transportation management at $58.7 billion, value-added warehousing at $47.2 billion, and dedicated contract carriage (DCC) at $20.3 billion. The contract logistics software market accounted for the remainder of the 3PL market, but was much smaller at $3.5 billion.

Three of the four segments are expected to post year-on-year declines in gross revenue in 2020, an indication of slower demand for their services. The one exception will be dedicated, where gross revenue is projected to rise 4.1%. Dedicated has remained the “stickiest” service during the pandemic because the business is governed by multiyear contracts and the use of spoken-for equipment, provisions not easy to walk away from, Armstrong said.

Dedicated services do well during very tight truckload markets as users look to lock in dependable sources of capacity for what is usually a multiyear period. DCC demand will grow modestly in 2020, Armstrong predicted. Much will depend on the outlook for truckload rates and the extent of pandemic-related disruptions on shipper and dedicated operations, the firm said.

The dedicated unit of J.B. Hunt Transportation Services Inc. (NASDAQ:JBHT) strengthened its market share lead last year with 24.6% net revenue growth, according to the report. The Hunt unit ended the year with a 13.5% share on a net revenue basis, based on the data. 

C.H. Robinson Worldwide Inc. (NASDAQ:CHRW) topped Armstrong’s list of the 50 largest U.S. 3PLs, with gross revenue of $14.6 billion. XPO Logistics, Inc. (NYSE:XPO) was second with gross revenue of $12.1 billion. UPS Supply Chain Solutions, part of the supply chain and freight unit of UPS Inc. (NYSE:UPS), J.B. Hunt’s three non-truckload units, and air and ocean freight forwarder and logistics provider Expeditors (NASDAQ:EXPD) rounded out the top five.

U.S.-based companies accounted for 22 of Armstrong’s list of the top 50 global 3PLs. French companies came in second, with six on the list. DHL Supply Chain and DHL Global Forwarding, two 3PL units of the DHL express and logistics behemoth, was the largest 3PL in the world last year with gross revenue exceeding $27.5 billion, according to Armstrong data.