State of Logistics 2024: Third-party logistics (3PL)

Third-party logistics (3PLs) operators are facing multiple challenges, most notably the worldwide economy, exchange rates, and overall higher costs.

“Concerns surrounding the economy and its effect on the 3PL market have clearly grown in the past year amid a very challenging economic environment,” comments Nia Hudson, research analyst at Transport Intelligence Ltd. (Ti).

Rising transport and fuel costs, the tight labor market and associated costs related to retaining and hiring experienced personnel, as well as escalating price competition, all continue to put pressure on the world’s 3PL providers.

This fact is reflected in financial results by companies like Kuehne + Nagel International AG (K+N), which reported its earnings before interest and tax fell to $412 million in the first quarter of 2024. The results were lower overall, and affected by negative exchange rate effects of 3% relative to the prior year despite a slightly improving demand trend for transportation services in ocean cargo and airfreight, K+N said in a statement.

However, K+N CEO Stefan Paul noted that the company’s focus on efficiency and streamlined structures allowed the company to reduce costs per unit by 12% in sea logistics and 14% in air logistics. “By discontinuing the regional structure, we have laid the foundations for further growth and enabled more direct access to our customers worldwide,” he says.

Also making an impact on the industry is the surge of 3PL providers, which has intensified the competition and prompted a shift toward differentiation and specialization.

“These providers are increasingly focusing on establishing unique value propositions and diversifying their services,” says Sai Kiran Balaji, lead analyst, logistics research at Mordor Intelligence.

According to Balaji, these services now include automated picking, packaging, customization, and inventory management. Additionally, there’s a heightened emphasis on customer experience and satisfaction, prompting heavy investments in technology, process enhancements, and supply chain visibility.

“This customer-centric approach has led to the adoption of advanced tracking systems, real-time updates, and improved communication
channels,” says Balaji.

Providers are also engaging in pricing wars, resulting in narrower margins and increased price sensitivity. “Given this landscape, 3PL firms are prioritizing process optimization, efficiency enhancement, and cost reduction without compromising service quality,” adds Balaji.

As part of this focus on service quality, many 3PLs invested in robotics last year to improve efficiency, accuracy, and speed of picking.

“By accessing real-time data and analytics from the cloud, robots can now optimize their routes, reduce idle time, reduce human transport/travel time, and prioritize tasks based on demand,” says Evan Armstrong, president of Armstrong & Armstrong (A&A).

However, posing a significant challenge for 3PLs is the wave of fulfilment competitors, such as Amazon, that are chasing the hottest segment of the 3PL business: e-commerce. “Established 3PLs face the risk of losing key clients and collaborative opportunities with these retail giants,” Balaji says.

For example, Amazon’s Fulfilled by Amazon (FBA) program enables registered e-commerce sellers to store inventory in Amazon’s distribution centers with Amazon handling the picking, packing, and delivery—as well as providing return logistics and customer support.

Balaji notes how the shift has forced 3PLs to rethink their strategies and find new ways to add value to their services to remain relevant. •