Executive Briefings

Third-Party Logistics Services Providers Recover Some in 2010

Analyst Insight: Half a loaf is better than none, but don't be fooled by those large revenue increase percentages shown by leading 3PLs for 2010.  Third-party logistics in the U.S. got back to 2007 revenue levels, but the industry needs another year to reach the levels of the peak year of 2008 when revenues were $127bn.

--Dick Armstrong, chairman at Armstrong & Associates

While final results for 2010 will be adjusted, our estimate is that 3PL revenues were $121bn. That's an important 13-percent increase over 2009, but that year is aberrant as a base for any long-term comparative purposes.

The speed of recovery from 2009 for most 3PLs follows individual company asset relationships.

Asset-based third-party logistics companies are taking longer to expand and reach 2008 levels.  For example, J.B. Hunt Transport's dedicated contract carriage should end 2011 with revenues 5 percent higher than 2008, according to Jon Langenfeld/Baird estimates.  The same projections, however, show 2010 was 11 percent lower than 2008.

Similarly, value-added warehousing was hurt by excess capacity starting in 2008.  By mid-year 2010, the bottom had been reached and a slow recovery started to creep forward.

The most exciting development of the year was GENCO's acquisition of ATC followed by a minority private equity investment in GENCO by Greenbriar Equity.  GENCO paid $512m for the highly profitable fulfillment/returns specialist.  Among the four largest VAWD 3PLs only the largest, Exel, does not now have a significant private equity investor.  GENCO, Jacobson and OHL have private equity investors.  All three have expanded rapidly in the last five years.

Non-asset transportation managers have recovered more quickly from 2009 than asset-based 3PLs.  In general, transportation managers saw 15 percent to 20 percent drops in gross revenues in 2009 but took much smaller hits on gross margins (net revenues after purchased transportation is paid).  The strongest U.S.-based TMs exceeded their 2008 net revenues in 2010.

International transportation manager Expeditors International ended 2010 with net revenues of $1.7bn, 6 percent ahead of 2008.  Expeditors' major European-based competitors, DHL, Panalpina, Kuehne + Nagel and DB Schenker, all had major increases primarily due to large airfreight gains.  On a calendar-year basis, U.S.-based UTi ended 2010 at its 2008 revenue level as its new management team gained control.  UTi is 45 percent contract logistics and 55 percent freight forwarding.

On the non-asset, domestic TM side, C.H. Robinson's net revenues were 7 percent ahead of 2008.  CHR continues to make money in European freight brokerage while planning to do the same in China.  CHR is dominant in U.S. domestic transportation management, amassing over 40 percent of sector profits.

The Outlook

U.S. third-party logistics should grow about 7 percent a year in 2011 and 2012, following a pattern of growing 2½ to 3½ times GDP.  3PL growth should be fastest in Asian segments where there are significant new opportunities in China, India and other industrial economies.  Intra-European business will be the biggest laggard and companies like CHR will need to continue to take market share to grow.

The U.S. economy will limp along as politicians blow more hot air about tax cuts but do little to correct structural problems related to the current asset accounts imbalance, deficit spending and the creation of new and better working-class jobs.

Analyst Insight: Half a loaf is better than none, but don't be fooled by those large revenue increase percentages shown by leading 3PLs for 2010.  Third-party logistics in the U.S. got back to 2007 revenue levels, but the industry needs another year to reach the levels of the peak year of 2008 when revenues were $127bn.

--Dick Armstrong, chairman at Armstrong & Associates

While final results for 2010 will be adjusted, our estimate is that 3PL revenues were $121bn. That's an important 13-percent increase over 2009, but that year is aberrant as a base for any long-term comparative purposes.

The speed of recovery from 2009 for most 3PLs follows individual company asset relationships.

Asset-based third-party logistics companies are taking longer to expand and reach 2008 levels.  For example, J.B. Hunt Transport's dedicated contract carriage should end 2011 with revenues 5 percent higher than 2008, according to Jon Langenfeld/Baird estimates.  The same projections, however, show 2010 was 11 percent lower than 2008.

Similarly, value-added warehousing was hurt by excess capacity starting in 2008.  By mid-year 2010, the bottom had been reached and a slow recovery started to creep forward.

The most exciting development of the year was GENCO's acquisition of ATC followed by a minority private equity investment in GENCO by Greenbriar Equity.  GENCO paid $512m for the highly profitable fulfillment/returns specialist.  Among the four largest VAWD 3PLs only the largest, Exel, does not now have a significant private equity investor.  GENCO, Jacobson and OHL have private equity investors.  All three have expanded rapidly in the last five years.

Non-asset transportation managers have recovered more quickly from 2009 than asset-based 3PLs.  In general, transportation managers saw 15 percent to 20 percent drops in gross revenues in 2009 but took much smaller hits on gross margins (net revenues after purchased transportation is paid).  The strongest U.S.-based TMs exceeded their 2008 net revenues in 2010.

International transportation manager Expeditors International ended 2010 with net revenues of $1.7bn, 6 percent ahead of 2008.  Expeditors' major European-based competitors, DHL, Panalpina, Kuehne + Nagel and DB Schenker, all had major increases primarily due to large airfreight gains.  On a calendar-year basis, U.S.-based UTi ended 2010 at its 2008 revenue level as its new management team gained control.  UTi is 45 percent contract logistics and 55 percent freight forwarding.

On the non-asset, domestic TM side, C.H. Robinson's net revenues were 7 percent ahead of 2008.  CHR continues to make money in European freight brokerage while planning to do the same in China.  CHR is dominant in U.S. domestic transportation management, amassing over 40 percent of sector profits.

The Outlook

U.S. third-party logistics should grow about 7 percent a year in 2011 and 2012, following a pattern of growing 2½ to 3½ times GDP.  3PL growth should be fastest in Asian segments where there are significant new opportunities in China, India and other industrial economies.  Intra-European business will be the biggest laggard and companies like CHR will need to continue to take market share to grow.

The U.S. economy will limp along as politicians blow more hot air about tax cuts but do little to correct structural problems related to the current asset accounts imbalance, deficit spending and the creation of new and better working-class jobs.