2023 State of Logistics: Third Party Logistics (3PL)

The global third-party logistics provider (3PL) market is estimated to be $1.50 trillion in 2023 and is expected to reach $2.13 trillion by 2028, growing at a CAGR of 7.30%, according to ResearchAndMarkets.com.

Providers have been riding a high tide of profits, with the largest 3PLs continuing to make handsome profits last year despite challenging and uncertain economic conditions. Armstrong & Associates (A&A) reports that in 2022, the U.S. 3PL market alone saw revenues upwards of $405.5 billion—the fourth best growth year on record since A&A began developing 3PL Market Estimates in 1995.

According to A&A, driving its growth has been the boom in demand for e-commerce, the extraordinary inventory buildup from the pandemic supply chain disruption, along with the rapid development and investment in technology systems that have made it possible for 3PLs to efficiently decrease purchased transportation costs while staving off significant price concessions to shippers.

This isn’t to say that 3PLs have not been restrained by high volatility in fuel costs along with rising costs associated with labor and real estate. Indeed, inflationary pressures and the threat of a recession are making an impact on their clients who are keeping a keen eye on inventory levels—along with supply and demand needs. To address these multiple pressures—and to remain competitive—3PLs are increasingly investing in technology to make them even more efficient as well as ways to differentiate their services.

“Logistics provider are pushing hard to invest in efficiency to deal with increasing inflation, a tough labor environment, and seeking to drive better service,” says John Murnane, senior partner at McKinsey & Co.

According to Murnane, those with deep pockets are especially investing heavily in automation and predictive analytics. Providers will also continue to invest rigorously in warehouse robotics and automation to meet customer expectations for fast, reliable deliveries and an abundance of product choices. For example, DHL Supply Chain announced plans to invest $15 million to further automate its warehouses as part of company’s Accelerated Digitalization agenda.

In the meantime, technology is at the core of DSV and its work with optimizing its customers’ supply chains. C.H. Robinson has implemented a tech-plus strategy that serves customers by leveraging technology and innovation in addition to its people, scale and global suite of services.

“This approach enables us to not only help our customers navigate today’s increasingly complex supply chains, but also orchestrate comprehensive, integrated strategies in a constantly changing environment,” says Mike Short, president of global forwarding at C.H. Robinson.

Third-party logistics are expected to continue to expand despite the economic slowdown as they look to shore up their distribution capabilities. But this will not be the case for smaller 3PLs, says James Breeze, head of industrial and logistics research at CBRE, who finds that these businesses do not have the capital reserves to do the same. But large 3PLs—flush with cash—will continue to grow bigger through mergers and acquisitions.

“Mergers and acquisitions is becoming attractive, as strategic players are finding that rising interest rates are proving more challenging for financial sponsors than strategic investors,” Murnane adds.