3PL Services
Market, Supplier, Risk and
Competitive Intelligence

Industry Outlook & Drivers

Global Market Outlook on 3 PL services

•  3PL refers to third party logistics. In the world of logistics, 3pl involves outsourcing of logistics services and distribution services. These third-party services are offered by a lead logistics provider to any business that wants its key processes like logistics and transportation to be handled by a lead service provider (LSP). Outsourcing allows an organization to concentrate on core business, while allowing the storage and distribution to be handled by professionals.
• A 3pl company offers transport and warehousing services and has its own warehouse or chain of warehouses. It would also have a transport fleet and be able to manage the entire end-to-end supply chain.
• What is popularly known as the ‘Amazon effect’ - the growth of supply chain outsourcing in the e-commerce sector. The rapid growth of online sales of products has positively impacted 3pl companies that offer logistics & warehousing services.
• The use of technology has helped in effective supply chain management. This allows 3pl companies to assist businesses to manage their order fulfilment and delivery logistics. RFID, use of mobile apps, and SCM software applications have all helped in the growth of outsourced logistics. This paves the way to an improved last-mile delivery, allowing end-customers to get the best services.  
• Airfreight shippers with global operations, on an average, have engagements with 6–10 freight forwarders for their annual volume (85–90 percent of volumes). It is considered to be the benchmark for a highly consolidated supplier base.
• Ocean freight shippers with global operations engage directly with shipping liners, as well as with freight forwarders, based on the volume movement in different regions.
• The key dependent variables/factors are the number of lanes, supplier capabilities, volume per lane, and physical presence of the shipper.

The general practice while contracting for freight forwarding and customs brokerage services

●      The general practice of all the major shippers is to bundle the freight forwarding and customs brokerage services to reduce the complexity of the supply chain.

●      This practice assists the freight forwarders to understand more about the shipper's international flow of goods, major lanes of operation, and other transportation needs.

The preferred contract model for engaging with the freight forwarder

●      The freight forwarders prefer a short-term contract model, due to its transparency and lack of risk by the shippers, freight forwarders, and suppliers.

3PL Industry - Market Overview

• The global 3PL industry is estimated to grow at a CAGR of 5–5.5 percent, due to the increase in e-commerce and trade activities. Government regulations are also increasing the 3PL demand across industries.
• In 2018, the global 3PL industry size was estimated to be about $865 billion, with APAC, North America, and the EU contributing to ~85 percent of the market.
• In 2019, the 3pl market size was $1,027.71 billion. The 3pl market would reach $1,789.94 million by the year 2027. Globalization and e-commerce are 3pl market trends that have helped this market to grow rapidly. The need for reliable and on-time shipping services have allowed 3pl companies offering transport and warehousing management services to flourish.
• Some of the key supply chain outsourcing companies include DHL International GMBH, FedEx Corporation, Nippon Express, CH Robinson Worldwide, Maersk, United Parcel Service, and Union Pacific Railroad.
• E-commerce is fast becoming the main driver of the global 3pl market. In 2016, global e-commerce sales were $2 trillion. By 2019, it had increased to $3.46 trillion. This trend will positively impact the 3pl sector. With many small companies and startups entering the e-commerce space, the demand for 3pl companies and outsourced transport and warehousing services has increased.  

Freight Forwarding - Market Overview

Demand from the manufacturing & retail sectors has forced the freight forwarders to consolidate their services and functions by sharing logistic facilities and centralizing management facilities to provide efficient services.

Growth Rate until 2020:

• The market witnessed many change in the last five years, and the main industry, such as automobile and retail, are expecting more technology-enabled delivery
• The freight forwarding industry was expected to grow by 4–4.5 percent until 2020. However, the sea freight market is expected to grow at 2–2.5 percent CAGR until 2025, as there is a cyclic trend between air freight and sea freight based on peak volume. In all, it is expected that the global freight forwarding market would increase from $170 billion in 2019 to $207 billion by 2026.

Factors Influencing the Growth Rate of Freight Forwarding Market

●      Excess capacity in the sea freight market, the continued introduction of mega-ships, and falling rates have resulted in volume gain for many forwarders.

●      To boost the air freight revenue and tonnage, forwarders are focusing more on industries, such as perishables and pharmaceuticals; for sea freight, it is oil & gas, retail, and e-commerce.

Cost Structure - Freight Forwarding

• Freight forwarders operate at a relatively low margin of 1–4 percent and are highly sensitive to decline in profitability, as the business model is highly dependent on cargo trade, carrier costs, and revenue management.

• A disproportionate change in revenue and carrier costs will lead to a transistor effect in profitability, hence, the freight forwarders should have matured revenue management strategies by appropriate cost-cutting actions with a view to operational costs.

Factors Impacting Customs Brokerage Services Cost

• Hidden cost components play a vital role in customs brokerage charges. It is found that corruption is the major hidden cost parameter that adds to the cost of customs clearance and customs visit charges.
•  When the variety of goods is more, a single declaration is not enough. Additional charges are levied for every additional declaration made for customs clearance. This further adds to the total cost of customs clearance.