News / 3PLs look for return of growth as competition grows and revenues fall

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3PLs have been facing a bundle of headwinds that have dented revenue growth for the sector. Value-added warehousing, which topped the other segments in 2023, is now experiencing a slowdown, but industry executives have expressed optimism that this is but a temporary blip.

According to Armstrong & Associates’ Third-Party Logistics Results & Outlook, net revenues (gross revenues less purchased transport) of US 3PL operators dropped 12.8% in 2023, to $129bn, while gross revenues slumped 26.1%, to $299.5bn.

Observers have pointed to several factors behind the decline, most prominently the state of the global economy, higher costs and exchange rates. While costs were buoyed by rising transport and fuel charges and a tight labour market, 3PLs were struggling with escalating price competition in a crowded field.

Numbers from Armstrong show the value-added warehousing and distribution segment fared best, enjoying a modest 1.6% rise in gross revenues, to $68bn. The previous year revenues had jumped 22.7%, to $67bn.

While this segment was the best performer in year-on-year growth, the domestic transport market maintained its crown as the leader in net revenue growth in the long run, with 10.2% CAGR since 2010. Revenue development in the international transport management arena shows the strongest decline, with CAGR shrinking 4.1% from its 2022 level of 7.8%.

Armstrong analysts diagnosed a divergence in the 3PL sector between asset-based and non-asset-based players from last year into 2024. The former, which had seen slower growth during the pandemic, have enjoyed continuing expansion in revenues, whereas non-asset-based 3PLs saw significant downtrends in revenues. They pointed to lower rates in air and ocean cargo as a major factor behind these troubles.

Given the strong upward momentum of pricing in these two arenas this year, non-asset-based 3PLs should be enjoying a rebound through much of this year. On the other hand, the upward pricing momentum in the warehousing market has lost steam. While logistics facilities are in still in demand, vacancy rates have climbed. Global real estate company Colliers reported vacancy rates up to 5.5%, in its report on the final quarter of last year, the highest since Q2 16.

Industrial real estate investment trust Prologis noted in April that demand for warehousing was weakening, and scaled back its plans for new constructions this year, from $3bn-$4bn to $2.5bn-$3bn. But, CEO Hamid Moghadam remained optimistic. He said: “While customer demand remains subdued, it is improving, and we expect that trend to continue as the construction pipeline shrinks.”

Commercial real estate investment trust CBRE recently also predicted a vacancy rate retreat, citing the decline in construction starts in warehousing this year.

One sector of warehousing that has remained robust is the mega-facility category with a footprint of 1 million sq ft or more.

CBRE observed that in the first half of this year, the number of leases signed for such behemoths was 31 – that is 10 more than in the first six months of 2023. The company’s analysis of the largest 100 industrial and logistics leases shows the average size of these buildings rose from 791,000 sq ft last year to 814,000 sq ft.

Retailers and wholesalers have led the charge, closely followed by 3PLs, reported CBRE. California’s Inland Empire saw the highest number of mega-warehouse leases, followed by Memphis and Fort Worth.

While it has lost some momentum since 2022, the 3PL sector is expected to show moderate growth going forward. Market data platform Statista indicates that collective 3PL revenue in the US should see an annual growth rate of 1.95% between this year and 2028, to a market volume of $318.2bn.