Global 3PL market revenues fall in 2023, with future growth on the horizon, Armstrong report notes

The majority of logistics and supply chain management industry stakeholders ostensibly experienced issues and difficulties, at some point, over the course of 2023, for a whole host of reasons. And third-party logistics (3PL) services providers were no exception. That was made clear in a report recently issued by Brookfield, Wisc.-based supply chain consultancy Armstrong & Associates Inc.

The report, entitled “Descent: Global and Regional Logistics Costs and Third-Party Logistics Market Trends Including a Segment Focus on Technological Vertical Industry Customer Growth,” found that total estimated 2023 global 3PL market revenue was off 18.5% annually, coming in at $1.2 trillion. But even with that decline, the firm observed that this tally still represented a 25.3% increase, when compared to pre-pandemic 2019.

Reasons cited by Armstrong for the revenue decline in 2023, which the report dubbed a “downtrodden year,” included: plummeting transportation rates; shippers focused on right-sizing inventories and also reducing logistics costs; rapid declines in air and ocean demand and rates; waning truckload demand, coupled with rates falling below the five-year average and leading to a freight recession; among other factors.

Individual market segments for 2023 in the report showed:

• Combined Dedicated Contract Carriage (DCC) and Domestic Transportation Management (DTM) revenue, collectively referred to as Transportation Management, or TM, by Armstrong, at $601.8 trillion, for a 10% annual decrease;
• Value-Added Warehousing and Distribution (VAWD) revenue, at $312.7 billion, up 8.4%, with Armstrong observing that the sector continues to fare well, amid the general lack of warehousing space, especially in cold chain, coupled with overall growth trends in e-commerce fulfillment and last-mile delivery; and
• International Transportation Management (ITM) revenue down 45.6%, to $277.2 billion, due largely to inventory drawdowns and lower freight rates over the course of 2023

The report added that global 3PL spending on high-tech was estimated at $259.1 billion in 2023, which is being paced by the growth of data centers, networking equipment, and an increasing focus on AI.

While global 3PL revenue was down 18.5%, from 2022 to 2023, Armstrong observed that post-pandemic recovery is expected to bring much of the developing world into a higher growth mode in 2024 and 2025, while muted when compared to developed economies in 2021 and 2022.

“With COVID, 3PL customers realized that supply chains need to be more flexible, and being able to source products and components from multiple countries versus just one, is beneficial,” the report said. “This has driven more nearshoring to Mexico, Malaysia with semiconductors, for example, and Vietnam. China will continue to be an important market and still has many integrated supply chains that are hard to decouple. Looking forward to 2024, U.S. domestic truckload rates have stabilized to a new lower level and spot market dry van demand is close to the five-year average; reefer is doing even better. Most Domestic Transportation Managers will tell you that we are still in a freight recession, but there is muted optimism for good growth in the second half of 2024. ITM has moderately bounced back from the first half of 2023 and has seen some rate benefit from shipping uncertainty in the Red Sea and reduced ocean traffic through the Suez Canal.”

Evan Armstrong, president of Armstrong & Associates, told LM that the 2023 global 3PL revenue decrease does not come as a major surprise, when considering it followed two high-growth years in 2021 and 2022, which saw major jumps in freight rates and overflowing warehouses.

“As we got out of the pandemic, things started to normalize more,” he said. “In 2023, rates started to decline, and warehouses were still mostly full, but the problem is that in looking at annual comparisons, 2023 looks like a devastating year, with a freight recession. But things remained at higher levels than in 2019. Things need to be viewed into what crazy years 2021 and 2022 were and, frankly, by 2026, where things previously were—and at higher levels—than we were going back to 2021.”

Armstrong & Associates pegs global 3PL market revenue to come in at $1.5 trillion in 2026 (matching 2022), with 2024 and 2025 estimated to hit $1.3 trillion and $1.4 trillion, respectively.  

Looking at current economic trends and data, in terms of how they impact 3PLs, Armstrong said that inflation, while not yet at the Federal Reserve’s 2% target rate, it is improving. And he added that between now and 2026, improvements will come in the form of DTM to rise 4.6% in the U.S. in 2024, followed by 9% growth, or more, in 2025 and 2026.

“It is going to get more back to normal, and it seems like it is hit and miss in terms of what businesses are succeeding now and what businesses aren’t,” said Armstrong.