Analysis highlights ‘extraordinary year’ for US logistics firms, boosted by inventory build-up prior to China tariffs, and Amazon becoming the world’s second-largest warehouse provider.
DHL once again topped the rankings of the world’s leading third-party logistics providers (3PLs) in gross revenue terms last year, followed by Kuehne + Nagel, DB Schenker, Nippon Express and C.H. Robinson, in what was “an extraordinary year” for US logistics firms, boosted by inventory build-up prior to the China tariffs, according to the latest research by Armstrong & Associates (A&A).
The US-based analyst reported that DHL Supply Chain & Global Forwarding achieved gross logistics revenue of $28.12 billion, while Kuehne + Nagel ($25.32 billion) was in second place followed by DB Schenker ($19.97 billion), Nippon Express ($18.78 billion) and C.H. Robinson ($16.63 billion) in fifth position.
Positions 6-10 were taken, respectively, by DSV, XPO, Sinotrans, UPS Supply Chain Solutions and J.B. Hunt.
DHL Supply Chain & Global Forwarding was also the largest air freight forwarder measured in tonnages terms in 2018, followed by K+N, DB Schenker, Panalpina and Expeditors, while for ocean freight K+N topped the A&A rankings by volume, followed by Sinotrans, DHL, DB Schenker and Panalpina.
Explaining the results in a webinar hosted by Stifel last week, Evan Armstrong, president of A&A, said 2018 was “an extraordinary year” for 3PLs, noting: “We had 15.8% year-over-year gross revenue growth [for dedicated contract carriage] in the (US 3PL) market, a lot of that driven by the inventory build that we had prior to the China tariffs [introduced by the Trump administration through 2018] going in.
“We won’t see that bump this year, so the year-over-year ‘comparables’ from 2019 to 2018 are pretty tough. It will be pretty tough to try to grow at 15.8% again this year.”
Last year, US 3PLs also saw a 23% year-on-year increase in domestic transport management revenue and an 11% increase in international transport revenues, helping overall net revenues surge 11.8%.
“For net revenue growth in domestic transportation management as high as 23.2%, I believe you have to go back to 2010, or maybe even beyond, to find better growth, year-over-year, in that segment,” said Armstrong.
“The international transportation management grew at 11%. Air freight tended to be the best driver of that growth.”
“So everybody was fairly fat and happy in 2018, and it’s pretty hard take these numbers into 2019, which we are seeing as we speak.”
One potential upside this year could come from the growth of e-commerce. US 3PL e-commerce revenues reached $12.8 billion in 2017 but increased to an estimated $15.3 last year. A&A expects 18% CAGR through 2020 to take e-commerce revenues for US 3PLs to $17.9 billion this year and to $20.9 in 2020.
“3PL revenues from e-commerce are still a small percentage of the 3PL market. However, it is the fastest-growing segment,” said Armstrong.
“When you talk to 3PLs, they’re much more interested in working with retail brands versus working with platforms. You’ve seen what’s happened with Amazon in-sourcing different parts of its supply chain from 3PLs. You have JD and Alibaba, which tend to have lower margins than if you work directly with a retail brand.
“So, a lot of 3PLs got that figured out, and there are a lot of retail brands that don’t want to work with the platforms and want to maintain their own supply chains. So there seems to be some pretty good match in what’s going on in e-commerce, and what 3PLs are delivering these days.”
Illustrating the increased role that platforms such as Amazon were having in 3PL markets, Armstrong highlighted global warehousing capacity in 2018. DHL had most capacity last year followed closely by Amazon.com – if classed as a 3PL – in second, with XPO Logistics, K+N and Nippon Express taking positions 3-5.
Armstrong said Amazon’s rapidly growing warehouse square footage “is quickly approaching the size of what DHL Supply Chain has in warehousing and in container freight stations. And if you looked at their third-party revenues, they would be the largest 3PL globally.
“However, the numbers they report tend to be fairly opaque and we don’t consider all of that to be 3PL revenue. Over half of their business is from marketplace customers and there’s a lot going on in terms of third-party logistics at Amazon these days.
“As part of that, we’ve seen an increase in lease rates, we’ve seen shortages of real estate in some markets, labour within warehouses has gone up, transit time, on-time performance of course has gone up.
“So, on time performance and the customer expectation has been ramped up due to the Amazon effect and, of course, Amazon still doesn’t have need for profit like most publicly traded third party logistics providers do, so it tends to operate under different rules.”