U.S. 3PL Market Grows 7 percent

Outpaces overall economy for eighth year in a row, supply chain consultancy finds

Stoughton, WI — April 3, 2003 — For the eighth consecutive year, U.S. growth in third-party, contract logistics has exceeded growth in the U.S. economy, with results for 2002 showing increases in turnover, net revenues and net income, according to new report from a supply chain consultancy.

The report, from consultancy Armstrong & Associates, indicated that turnover increased by 6.9 percent and net revenues by 7 percent in 2002, while net income increased from 1.7 percent in 2001 to 3 percent in 2002.

Results for individual companies varied widely. Armstrong's estimates for FedEx Services indicated a 40-percent shrinkage in contract logistics in the 2002 fiscal year. At the same time, UPS Supply Chain Solutions divisions increased significantly: UPS Logistics was up 39 percent in net revenue, while UPS/Fritz increased by 28 percent.

The FedEx and UPS contract logistics results reflect the strategic plans of the two companies, the consultancy concluded. UPS, in a partial re-branding, is giving more emphasis to non-package operations, while FedEx continues to devalue operations that do not put shipments exclusively into its trucks and airplanes.

Based on the study, the most profitable 3PLs continue to be transportation managers. C.H. Robinson, Expeditors and Landstar Logistics all had double-digit, after-tax net margins. All three companies had significant net revenue growth again this year. While turnover increased for the U.S. domestic transportation segment, lead by Robinson and Landstar, net revenues for the segment were flat because third-party logistics providers (3PLs) with leasing and intermodal marketing company (IMC) parent firms had reduced revenues.

The value-added warehousing 3PLs, represented by Exel, CAT Logistics and UPS Logistics, showed solid growth of 10.4 percent in net revenues. This segment grew by 11.5 percent in 2001. Most significantly, these 3PLs improved their net income margins from 0.7 percent to 1.7 percent in 2002. This segment has been plagued by under-pricing of its value-added services. Tibbett & Britten has eliminated some unprofitable business, while Exel and other majors are taking steps to improve profitability.

The freight-forwarding 3PL segment net revenue grew at 5.7 percent, following 6 percent growth in 2001. Net profitability margins improved from 2.8 percent in the 2001 fiscal year to 4.8 percent in 2002. This improvement is due to a narrowing of losses at Emery, the addition of UTi Worldwide and an assessment of the net revenues of DHL Danzas in North America. (Deutsche Post World net, the parent of DHL Danzas claims to use a "net revenue" model but allows purchased transportation to be incorporated in "net revenue." As a result, Armstrong says it is continuing to fine tune its DHL Danzas estimates.)

Dedicated contract carriage net revenue increased by 5.7 percent in 2002 after a flat 2001. Leasing company related dedicated carriers continued to lose market share. Cardinal, J.B. Hunt, Schneider, Swift and Werner all had double-digit growth. These dedicated operations spring from truckload carrier backgrounds and have the sustained advantage of relying on their parent company trucking networks to reduce backhaul miles and costs, according to Armstrong.

Armstrong & Associates is a supply chain management consulting firm specializing in market research, mergers and acquisitions and outsourcing.

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