3PL Services
Market, Supplier, Risk and
Competitive Intelligence

Industry Outlook & Drivers

Global Market Outlook on 3 PL services

• Third-party 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, such as 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 and warehousing services.

• The use of technology has helped in effective supply chain management, allowing 3PL companies to help businesses manage their order fulfillment and delivery logistics. Radio Frequency Identification (RFID), mobile apps, and SCM software applications have all helped in the growth of outsourced logistics. This paves the way for improved last-mile delivery, allowing end-customers to get the best services.  

• Air freight shippers with global operations, on average, have engagements with 6–10 freight forwarders for their annual volume (85–90% 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, given 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%, primarily driven by the increasing e-commerce and trade activities. Government regulations are also pushing the 3PL demand across industries.

• In 2018, the global 3PL industry size was estimated to be about $865 Bn, with Asia Pacific (APAC), North America, and the European Union (EU) contributing to ~85% of the market revenue.

• In 2019, the 3PL market size was $1,027.71 Mn, and the figure will reach $1,789.94 Mn by 2027. Globalization and e-commerce are 3PL key 3PL trends. The need for reliable and on-time shipping services has offered lucrative growth prospects for 3PL companies offering transport and warehousing management services.

• 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 Tn. By 2019, it had increased to $3.46 Tn. With many small companies and startups entering the e-commerce space, the demand for 3PL companies and outsourced transport and warehousing services has increased.

Global 3PL Industry - Drivers and Constraints

Drivers 

Flourishing E-commerce Growth 

The persistent growth of the e-commerce industry is changing the 3PL procurement landscape from the grassroots. With the rising customer expectations for timely and accurate deliveries, and to remain competitive, more e-commerce players are outsourcing business-critical aspects of their fulfillment operations and distribution to 3PL collaborators.

As several small-scale e-commerce players cannot afford to have internal logistic services. As such, services, including warehousing, supply chain management, order fulfillment, and consolidation service are outsourced to 3PL service providers. That said, prominent e-commerce giants, such as Flipkart and Amazon, are developing proprietary logistics frameworks.

4PL Gaining Momentum

Fourth-party logistics (4PL) is a breakthrough development that manages infrastructure, resources, technology, and even exterior 3PL to deliver comprehensive supply chain solutions. The 4PL service providers provide holistic consulting services apart from logistics operations, including outbound and inbound logistics, logistics strategy, business planning, inventory planning and management, and analytics. 

Leading companies - Accenture plc, Deloitte, DB Schenker Logistics, and BDP International - are providing 4PL services. While 4PL is in its early days, it will pick up pace over the years ahead from medium- and large-scale enterprises looking for a universal logistics solution.

Constraints

Lack of control of manufacturers on logistics service

By leveraging 3PL services, manufacturing companies have to bank on the competency and reliability of the service providers, which leads to a lack of direct control. Moreover, manufacturers cannot track the operations at their warehouses, posing a serious threat to product quality.

COVID-19 Impact on Global 3PL Market

The COVID-19 pandemic has put a huge dent in the supply chain operations across the world, especially the logistics and transportation resources. The shippers are encountering ambiguity in the transportation of goods due to the nationwide lockdowns in countries with myriads of COVID-19 infected cases. 

The logistics networks are getting disrupted due to the supply-demand disturbances and insufficient capacity for the long run, and last-mile delivery services. The reduced workforce and restricted working hours are further limiting the logistics operations.

Moving ahead, the COVID-19 crisis has had a ripple impact on domestic transportation management (DTM) services. There has been a discrepancy between the outgoing and incoming freights in the affected locations, adding to the lead time. 

Service providers are facing various issues, such as interruption of transportation, due to the boundary restrictions and surging demand for warehouses to stockpile the existing shipment that can no longer be sold due to the nationwide lockdown. To deal with the situation, 3PL service providers have begun short-haul storage identification services.

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 3PL market witnessed many changes over the last five years, and the main industry, such as automobile and retail, are expecting more technology-enabled deliveries

• The freight forwarding industry was expected to grow by 4–4.5% until 2020. However, the sea freight market is expected to grow at 2–2.5% CAGR until 2025 as there is a cyclic trend between air freight and sea freight based on peak volume. All in all, it is expected that the global freight forwarding market would increase from $170 Bn in 2019 to $207 Bn 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.

Why You Should Buy This Report

• This report provides the statistical illustration of the global 3PL industry overview in tandem with the recent trends and future projections to represent the potential investment pockets.

• The 3PL report offers insights associated with the major drivers, constraints, and opportunities of the market with comprehensive impact analysis.

• The overall industry potential is estimated to help clients comprehend the lucrative trends and ensure a broader footprint.

• SWOT and Porter’s five forces analysis elucidate the potential of the suppliers and buyers in the 3PL market.

• The present market is quantitatively examined from 2019-2027 to measure financial capability.