Similar to the previous year, 3PLs persist in grappling with a myriad of crucial and urgent issues that test their adeptness in handling clients’ supply chains. Despite the staggering financial performance observed in 2021, the outlook for the market in 2022 hinges on the momentum of global recovery, which presently appears to be decelerating.
Just as third-party logistics (3PL) providers believed they had weathered the worst of the supply chain disruptions, Russia’s invasion of Ukraine and China’s imposition of lockdown measures in Shanghai added further chaos.
“The year 2021 proved to be eventful for both ocean and air,” reflects Tim Scharwath, CEO of DHL Global Forwarding. “However, within the first two-and-a-half months of 2022, the situation worsened. We find ourselves, in a sense, back to square one—reminiscent of 2021.”
“The current major challenges mirror those encountered by shippers,” says Sri Laxmana, vice president of global forwarding for C.H. Robinson. “They encompass ongoing capacity constraints, shipping delays, port congestion, labor and equipment shortages, and persistent disruptions stemming from various factors, including the recent Russia-Ukraine conflict, COVID-19 outbreaks, and local travel restrictions.”
Reuters recently referenced a study by the Royal Bank of Canada that succinctly outlines the issue. It reveals that one-fifth of the global container fleet is presently stranded due to congestion at various major ports. In early May, the number of ships awaiting berths at the Port of Shanghai reached 344—an increase of 34% compared to April’s total.
Armstrong & Associates Top 50 U.S. 3PLs (Largest U.S. 3PLs Ranked by 2021 Logistics Gross Revenue/Turnover)
*Revenues encompass all four 3PL Segments (DTM, ITM, DCC, and VAWD), sourced from company reports or estimates by A&A, and have been converted to US dollars using the annual average exchange rate as of April 2022. Copyright © 2022 Armstrong & Associates, Inc.
“It will take a considerable amount of time to recover from this,” remarks Lars Jensen, CEO of Vespucci Maritime. “There’s no excess capacity in the system, and it wouldn’t take much to worsen the situation.” He likens the vessel delays in February to sinking the entire fleet of CMA CGM to the ocean floor. “That’s the stark reality we’re still facing.”
Adding to the challenges are escalating rates and costs. “Shipping expenses have been climbing steeply throughout the supply chain and have now reached historically high levels worldwide,” notes Nia Hudson, a research analyst at London-based Transport Intelligence (Ti). “This trend is particularly evident on shipping routes from Asia to North America and Europe.”
Ti’s ocean freight tracker reveals that in February 2022, rates on lanes from China/East Asia to the US West Coast increased by 175.6% year-on-year, while rates on the return journey surged by 30.2% year-on-year. Industry experts anticipate that shippers won’t experience significant rate relief until at least the third quarter of 2022. “Both DSV and Maersk have cautioned that freight costs are likely to remain elevated well into the year,” adds Hudson.
Other contributing factors include rising oil prices, sustained consumer demand, container shortages, and limited capacity in ocean and air freight, compounded by workforce shortages that have resulted in high labor costs and diminished personnel to handle volumes.
Critical Collaboration
The consensus within the industry is that these issues are unlikely to be swiftly resolved. Nevertheless, 3PLs and shippers are persisting in collaborating to devise innovative solutions to surmount challenges and maintain the flow of goods. Indeed, all stakeholders in the supply chain logistics realm are striving to find inventive ways to collaborate.
“We believe that everyone, especially the ocean carrier community, is making significant efforts to assist our customers in finding optimal solutions to ensure the availability of goods,” says Scharwath. “Anything that can navigate the waters is currently in use.”
Laxmana highlights how C.H. Robinson is aiding shippers in managing delays in ocean shipping by transitioning some of their freight from full-container-load (FCL) to less-than-container-load (LCL) shipping, including expedited LCL. “This offers cost and time savings, as well as greater flexibility to accommodate last-minute adjustments amid prolonged wait times at ports,” he explains.
Simultaneously, J.B. Hunt Transport Services Inc. and BNSF are embarking on a collaborative endeavor to significantly enhance capacity in the inland intermodal market while catering to the expanding needs of existing customers.
Expanding Horizons Many leading 3PLs are broadening their scope to encompass end-to-end logistics, with a growing focus on enhancing value-added services, expanding geographically, and boosting company valuation.
Consequently, mergers and acquisitions within the industry continue unabated, maintaining a pace similar to that of 2021.
In the realm of airfreight and air transport, Kuwait’s Agility and its subsidiary National Aviation Service have made a bid for the UK-based aircraft handling company John Menzies. GXO, the contract logistics arm spun off from XPO, has expressed interest in acquiring the UK-based 3PL Clipper Logistics, while MSC has recently reached an agreement to acquire Bollore Africa Logistics.
C.H. Robinson is extending its global and Asian footprint by inaugurating a new office in Beijing, which will serve as its North China airfreight logistics hub, supplementing its existing airfreight hubs in Shanghai, Guangzhou, Shenzhen, and Hong Kong. “Organizations with substantial scale are poised to stay ahead of the market, particularly during periods of significant market disruption,” remarks Hudson.
Full Steam Ahead for Diversified
Operations Steamship lines are increasingly securing positions to integrate their operations with those of 3PLs, a trend exemplified by Maersk’s activities in 2021.
“Maersk completed no fewer than seven deals during the year, including several acquisitions aimed at expanding its footprint in the e-commerce sector,” notes Nia Hudson, a research analyst with Transport Intelligence Ltd (Ti).
One notable transaction occurred in August when Maersk acquired Visible Supply Chain Management, a US-based e-commerce fulfillment provider. This was followed in December by Maersk’s acquisition of LF Logistics, a Hong Kong-based contract logistics provider specializing in omnichannel and e-commerce logistics. The LF deal adds approximately 223 warehouses across the Asia Pacific region to Maersk’s network, which now spans 9.5 million square meters globally.
More recently, on May 2, Maersk completed its $1.68 billion acquisition of Pilot Freight Services, a move aimed at enhancing the carrier’s capabilities in offering customized international, domestic, and cross-border logistics, particularly for B2B and B2C distribution models in North America.
Pending approval,
For certain shippers, engaging with 3PLs possessing economies of scale offers broader benefits, such as access to an extensive network. “This is especially crucial for shippers seeking to venture into new territories,” notes Hudson. “Collaborating with providers of scale is also likely to yield cost advantages as production becomes more streamlined.”
Market Consolidation and Innovation Market consolidation is also expected to influence the visibility of shippers’ supply chains as 3PLs gain access to new capabilities and technologies. Some 3PLs have taken steps to reduce order fulfillment expenses and offset the high costs of freight and rental. “Several companies have ramped up investment in automation to alleviate pressure from labor shortages and optimize warehouse space,” says Hudson.
DHL Supply Chain, for instance, announced at the outset of the year that it was investing $15 million in robotics solutions from Boston Dynamics to further automate warehouses in North America, tailored specifically to address challenges within the warehouse space. “Numerous European companies—such as GEODIS, SEGRO, and DSV—are acquiring warehousing space closer to end customers in an effort to minimize costs,” she adds.
Additionally, 3PLs are rolling out services aimed at cost reduction. GXO’s Direct distribution network in North America, for instance, strategically places inventory in distribution centers to provide shippers with a cost-effective and flexible distribution solution. “It’s these providers that are endeavoring to introduce cost-effective services that will be able to generate added value for consumers,” remarks Hudson.
Explosive Growth
The challenges have spawned immense opportunities for 3PLs, as reflected in their financial performance. Armstrong & Associates, Inc. (A&A) estimates that gross revenues in the US 3PL market surged by an astonishing 50.3% in 2021, reaching a total of $347.9 billion.
C.H. Robinson secured the top spot in A&A’s rankings, with estimated gross revenues of $22.3 billion compared to $15.5 billion in 2020. Globally, C.H. Robinson clinched the fifth spot, with its Global Forwarding division more than doubling in 2021, boasting a gross revenue growth of 117.1% to $6.7 billion, while net revenue surged by 70.7% to $1.1 billion.
“Evolving into a leading freight forwarder on the Asia-to-US trade lane, with a total of 1.5 million ocean export TEUs managed, C.H. Robinson has surpassed its long-standing US-based competitor Expeditors International,” explains Evan Armstrong, president of A&A. Expeditors ranked second in A&A’s Top 50 US 3PLs, outperforming XPO Logistics (sixth in 2021; second in 2020) and UPS Supply Chain Solutions (third in both 2021 and 2020). Its estimated gross revenues for 2021 stood at $16.5 billion, compared to $10.1 billion in 2020.
“Expeditors International holds the top spot among US-based international transportation management 3PLs in terms of revenue,” Armstrong adds. A&A’s findings reveal that Expeditors’ gross revenue surged by 67.7% to $16.5 billion in 2021, with net revenue climbing by 39.7% to $4.5 billion. The growth was primarily driven by ocean freight, where gross revenue soared by 137% to $5.5 billion from $2.3 billion in 2020.
Expeditor’s ocean freight consolidation business expanded by 194%, primarily due to exports from Asia. Airfreight gross revenue also increased by 58% to $6.8 billion, although net revenue growth was slightly subdued due to heightened costs of purchased transportation in both air and ocean, resulting in an overall decline in gross profit margin from 32.4% to 27% for 2021.
A&A’s analysis indicates that global player Kuehne + Nagel ascended to the top spot in 2021, displacing DHL Supply Chain & Global Forwarding, as the largest global 3PL by gross revenues. Kuehne + Nagel grossed an impressive $40.8 billion in 2021, up from $25.8 billion in 2020, while DHL Supply Chain & Global Forwarding raked in an estimated $37.7 billion in 2021, compared to $28.4 billion in 2020.
DSV secured the third position, with gross revenues of $28.9 billion in 2021, up from $18.3 billion in 2020, when the company operated under the name DSV Panalpina.
Navigating the Future in 2022
While the financials for 2021 were staggering, the trajectory of the market in 2022 hinges on the pace of global recovery, which currently appears to be slowing.