Opinion: 3PLs an Essential, Growing Part of Economy

This Opinion piece appears in the April 13 print edition of Transport Topics. Click here to subscribe today.

By Robert Voltmann

President & CEO

Transportation Intermediaries Association

The third-party logistics industry is more than three times the size of the candy industry in the United States and is larger than both the U.S. beer industry and electronic gaming industries.

The market research firm Armstrong & Associates estimates the 3PL industry’s total value to be about $154 billion. The industry is growing at a rate that is two to three times gross domestic product.

The Transportation Intermediaries Association estimates that the North American 3PL industry employs 123,000 to 150,000 people and, with an average compensation of $60,000, produces an industrywide payroll of more than $7 billion. Yet, for all of its economic importance and influence, the 3PL sector remains largely invisible outside of the transportation industry. However, its impact on our economy is both noticeable and widespread.

Shippers of every size, from boutique shops to big-box stores, have experienced the importance of third-party logistics firsthand.

Whether it is having a 3PL in their mix of core carriers, or turning their entire logistics operation over to a third party to manage, 3PLs play an essential role in moving all types of goods to all types of markets. In addition, 3PLs provide a convenient single point of access to thousands of small carriers across the country.

Wall Street also has recognized the importance and potential of the 3PL industry. The logistics segment of the BGSA Supply Chain Index, which includes the top 3PLs in the market, is up more than 17% compared to last year —  and as a whole, the index outperformed the S&P 500.

In addition, $36.7 billion has been spent to acquire logistics companies in North America over the past 10 years, according to Armstrong & Associates. This tremendous growth in the industry has seen companies such C.H. Robinson Worldwide reach $13.5 billion in revenue.

Meanwhile, XPO Logistics reached $831 million in annual revenue after first going public in 2006 and still managed to build up more than $1 billion in cash reserves. The private sector of 3PLs has seen significant progress as well, with companies such as Total Quality Logistics doubling their business since 2011 to reach $2.1 billion in annual revenue last year.

In our own recent survey of TIA members, TIA’s 3PL Market Report, companies across the board reported increased revenue from the year before, with significant growth reported by 3PLs ranging from $16 million up to $100 million in annual revenue. Even as shipments declined slightly in the last quarter of 2014, most of our members still came away with increased margins. With capacity expected to remain tight, 2015 is expected to be another good year for the 3PL industry.

While the Transport Topics Logistics Top 50 looks at today’s biggest players, it’s important to remember that the 3PL industry is made up of thousands of logistics providers. Most of these are small, family owned businesses that provide outstanding service to both their shipper and carrier customers. Comparatively, we are often quick to take notice of what a Home Depot or Budweiser is doing, even if we shop at a Village Hardware or drink local microbrews. Examining today’s top 3PLs provides us with a broader picture of how the industry has grown in the past year as well as what changes we can expect in the future.

With plenty of growth and hearty competition in the industry, we’re proud to recognize this year’s list of the TT Top 50 logistics providers. Regardless of annual billings, today’s 3PLs are investing in people, knowledge and technology to better serve their customers.

3PLs come in all sizes and with a variety of capabilities to meet an increasingly diverse market. The 3PL industry is growing because of these investments, their commitment to their customers, and their flexible, mode-neutral service.

The Transportation Intermediaries Association, based in Alexandria, Virginia, is the professional organization of the $154 billion third-party logistics industry. It is the only organization exclusively representing transportation intermediaries of all disciplines doing business in domestic and international commerce. TIA is the voice of transportation intermediaries to shippers, carriers, government officials and international organizations. TIA is the U.S. member of the International Federation of Freight Forwarder Associations.