2009: a 'swan dive' in 3PL revenue

Pharmaceutical CommercePharmaceutical Commerce - May 2009

First decline since Armstrong & Associates began tracking the industry in 1996

The combination of a global financial crisis, a recession in most parts of the world, and wildly unstable fuel prices are pounding the economic outlooks of most third-party logistics (3PL) companies, according to an annual report from Armstrong & Associates (Stoughton, WI). The company began tracking 3PL trends in 1996, and overall revenue for the US market has grown smartly from around $31 billion then to $127 billion in 2008 (which actually finished up over the year before).

But according to its recent survey, revenue will drop by 8.8% this year, to $118 billion, and won’t recover 2008’s figure in 2010, either, when revenue is projected at $125 billion.

Logistics for healthcare products is not broken out separately; Armstrong had previously estimated that it is at most 5% of the overall market. And, with its relatively high-value, low-volume products, the healthcare products industry is somewhat insulated (both positively and negatively) from the broader industry trends. In fact, to the extent that healthcare products track with food and grocery delivery, the sector is up for the year, while other sectors, such as automotive, are down dramatically. Still, a gallon of jet fuel is a gallon of jet fuel, and biopharma companies are looking intensely for savings throughout their supply chains.

Warehousing is brightest

During this down year, revenue declines will not equally affect all segments of 3PL services that Armstrong tracks. Value-added warehousing and distribution is projected to have the slightest decline (by 3% at the lower end), while international transportation management will have the largest (12%). Domestic transportation management and dedicated contract carriage will fall in between. Armstrong also says that returns management is doing comparatively well.

“While a few third-party logistics providers (3PLs) could drown, most are treading water and some are swimming strongly,” concludes Evan Armstrong, president.

Service offerings

Another report that Armstrong & Associates publishes “Trends in 3PL/Customer Relationships,” tracks the range of services that 3PLs are providing to their manufacturer customers. About 81.5% of customers use 3PLs for strategic supply chain management and/or lead logistics provider; the remainder use them only for specific, tactical activities. More than three-quarters of the Fortune 500 use at least one 3PL for some activity.

The reports are available, for $995 each, from Armstrong & Associates at www.3plogistics.com. PC

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