Top 50 Third Party Logistics (3PLs) Providers 2024: Not out of the woods

Last year proved to be challenging for third-party logistics (3PLs) providers. Transportation rates plummeted, fuel prices skyrocketed, retaining and attracting talent became difficult, warehouse space tightened, rules and regulations increased, competition surged, and the supply chain faced frequent disruptions. Meanwhile, shippers focused heavily on right-sizing bloated inventories and reducing logistics costs.

London-based Transport Intelligence Ltd.’s (Ti) State of Logistics Survey 2024 shows that the three most important challenges currently affecting the 3PL industry are the economic downturn, increased costs, and increasing competition.

“This marks somewhat of a difference compared to when we ran this survey last year, where increased costs were voted the most important challenge for the 3PL market at the time,” says Nia Hudson, Ti research analyst. “Concerns surrounding the economy and its effect on the 3PL market have clearly grown in the past year amid a very challenging economic environment.”

The leading U.S. 3PL consultancy, Armstrong & Armstrong (A&A), points to the rise in central bank policy rates to fight inflation as continuing to weigh on 3PLs and pressure margins.

Meanwhile, the Transportation Intermediaries Association (TIA) reports that 3PLs saw a 4.7% decline in shipments during the fourth quarter of 2023, a 4.3% decrease in invoice amount per shipment, and an 8.8% drop in total revenue compared to third quarter of 2023. “Average gross margin percentage during the fourth quarter stood at 15.6%, up slightly on a quarter-to-quarter basis, but still well below year-ago levels,” say TIA analysts.

Meanwhile, the influx of new players in the e-commerce fulfillment space has triggered a race to the bottom in pricing. “As a result, 3PLs are compelled to offer competitive rates to attract and retain clients,” says Sai Kiran Balaji, lead analyst of logistics research at Mordor Intelligence. “For instance, Amazon’s transparent fee structure empowers sellers to estimate their costs and potential profits accurately.”

Additionally, Amazon’s multi-channel fulfillment allows sellers to fulfill orders from various sales channels using their inventory stored in Amazon’s centers. “To keep up, 3PLs must invest more in meeting these demands while safeguarding their customer base,” says Balaji. “They must also explore innovative pricing strategies and value-added services to differentiate themselves from the competition.”

Armstrong & Associates Top 50 U.S. 3PLs

(Largest U.S. 3PLs Ranked by 2023 Logistics Gross Revenue/Turnover)

*Revenues cover all four 3PL Segments (DTM, ITM, DCC and VAWD), are company reported or A&A estimates, and have been converted to US$ using the annual average exchange rate. **Revenue shown is that of Amazon’s Third-Party Seller Services business segment, which includes its 3PL operations as well as commissions and any related fulfillment and shipping fees, and other third-party seller services. Based on its 3PL warehousing footprint and e-commerce fulfillment focus, Armstrong & Associates estimates most of this segment’s revenue is from 3PL services. Copyright © 2024 Armstrong & Associates, Inc.

Revenue/turnover ranked

The 3PL gross revenue/turnover figures, compiled by A&A in its list of Top Global 3PLs, indicate just how hard hit the industry was in 2023. In fact, Amazon now leads the pack by a wide margin.

A&A list ranks Amazon as the highest earning 3PL, with 2023 global gross revenues at over $140.053 billion, an enormous amount over No. 2 ranked DHL Supply Chain & Global Forwarding, which came in with $33.869 billion ($45.6. billion in 2022).

In third, Kuehne + Nagel (K+N) with $31.659 billion ($46.864 billion in 2022), fourth is DSV with $22,316 ($34.883 billion in 2022), fifth is DB Schenker with $22.257 billion ($30.392 billion in 2022), and sixth is C.H. Robinson with $16.746 billion ($23.874 billion in 2022).

On the U.S. side, the top four 3PLs in terms of gross revenues were Amazon, C.H. Robinson, J.B Hunt, and UPS Supply Chain Solutions. Globally, C.H. Robinson is ranked No. 6, J.B. Hunt, No. 11, and UPS Supply Chain Solutions, No. 13.

This was the first year A&A included Amazon on its list. “Based on its 3PL warehousing footprint and e-commerce fulfillment focus, we could no longer exclude Amazon,” says Evan Armstrong, president, A&A. “Although the revenue shown is that of Amazon’s Third-Party Seller Services business segment, which includes its 3PL operations as well as commissions and related fulfillment and shipping fees, and other third-party seller services, we estimate most of this segment’s revenue is from 3PL services.”

With an estimated 255 million square feet of 3PL warehousing space in 411 warehouses just within North America and 360 million square feet of 3PL warehousing space in 710 facilities globally, excluding its Prime Now hubs, airport hubs, sortation centers, delivery stations, and data centers, Amazon is also the largest value-added warehousing and distribution (VAWD) 3PL in both categories.

A&A’s last warehousing market study determined that Fulfillment by Amazon (FBA) controls 60% of the U.S. e-commence 3PL market. A&A also notes how Amazon has dramatically affected warehouse employee wages and lease rates in key distribution areas such as Plainfield, Ind., and California’s Inland Empire.

Ti notes, however, that last year Amazon faced issues with overcapacity—the result of its aggressive warehousing network expansion.

Armstrong & Associates Top 50 Global 3PLs

(Largest U.S. 3PLs Ranked by 2023 Logistics Gross Revenue/Turnover)

*Revenues cover all four 3PL Segments (DTM, ITM, DCC and VAWD), are company reported or Armstrong & Associates, Inc. estimates, and have been converted to US$ using the annual average exchange rate.

**Revenue shown is that of Amazon’s Third-Party Seller Services business segment, which includes its 3PL operations as well as commissions and any related fulfillment and shipping fees, and other third-party seller services. Based on its 3PL warehousing footprint and e-commerce fulfillment focus, Armstrong & Associates estimates most of this segment’s revenue is from 3PL services.

***In-house logistics revenues were capped at 50% for fairness. Copyright © 2024 Armstrong & Associates, Inc.

Warehouse costs

Ti’s State of Logistics Survey 2024 showed that when compared with pre-pandemic data, warehouse operational costs are significantly higher.

More than 90% of respondents reported some sort of cost increase when compared with pre-pandemic numbers, and only 6% reported no change or lower costs in comparison. Over 40% of respondents saw operational costs increase by 1% to 15%, while 44% saw costs increase by 15% to 40%.

“Rising costs are still prevalent when compared with 2023, but less so than pre-pandemic, indicating a slower rate of warehouse cost growth as the global economy continues its shaky recovery path following the pandemic,” says Hudson.

Ti’s warehouse cost index also shows a similar pattern—although costs are elevated, cost growth is slowing. “One of the key factors influencing warehousing costs is the imbalance of supply and demand,” says Hudson. “We’re still seeing a situation, particularly in the West, where warehouse vacancy rates are very low when compared with historic levels, which is in turn pushing up warehouse rental costs.”

Influencing factors

While 3PLs were affected by their customers’ reactions to ongoing issues related to the pandemic and geopolitical risks, Armstrong points out that many realized supply chains need to be more flexible and able to source products and components from multiple countries rather than being reliant on only one.

“A bright spot for 3PLs has been cross-border trade with Mexico, now the largest trading partner with the United States, as companies look to nearshore manufacturing from Asia,” Armstrong says. “This has created opportunities for 3PLs such as Ryder, C.H. Robinson, and ProTrans with strong cross-border offerings.”

Ti notes how 3PLs have, overall, been doing a very good job of mitigating inflationary issues by operating contracts where costs are transparent, and increases can be passed on to clients directly.

“Wincanton, for example, published data that showed that open book warehousing and transport contracts drove its revenue growth in the last few years,” says Hudson. “Hence, with price increases pushed down to customers, 3PL providers have largely been able to maintain the top line in what is a difficult economic environment.”

In fact, Ti’s contract logistics market sizing data shows an expected growth in contract logistics activity of 3.7% year-over-year in 2024, the highest growth rate since 2021, signaling a return to a more normalized, pre-pandemic state of growth. “However, while there’s relatively higher growth in emerging economies, advanced economies are expected to drag down the overall growth rate into this year,” says Hudson.

Segment activity

A&A figures indicate that international transportation management (ITM) 3PLs saw rapid declines in air and ocean demand and rates in 2023.

“ITM has moderately bounced back from the first half of 2023 and has seen some rate benefit from shipping uncertainty in the Red Sea and reduced ocean traffic through the Suez Canal,” says Armstrong.

Armstrong also points out that domestic transportation management (DTM) 3PLs became “hyper-focused” on contractual transportation management business and managed transportation versus spot-market freight brokerage as truckload demand waned and rates declined to under the five-year average causing a freight recession.

“The impact was widespread, and even included last-mile delivery providers which benefited from strong e-commerce demand during the pandemic shutdowns,” says Armstrong. Further, dedicated contract carriage (DCC) 3PLs hung in there due to the contractual nature of its transportation agreements. “However, pricing pressure persists,” he says.

A&A research determines that for VAWD 3PLs, inventories have stabilized, and some space has freed up even with higher interest rates keeping a lid on new warehouse development. “There’s been increased focus on fine-tuning warehouse pricing and improved bid performance,” says Armstrong. “Shippers see this as a good time to put out RFPs and work to mutualize some of the one-sided agreements entered into during the post-shutdown demand surge.”

But meanwhile, the rise of e-commerce fulfillment, customer expectations have soared. “They now demand multi-channel fulfillment, often expecting free and swift deliveries, even on the same day,” says Balaji.

McKinsey and Co. reports that 25% of customers are willing to pay a premium price for same-day delivery. “But fulfilling these expectations necessitates further investments in technology and operational efficiency, further affecting margins,” says Balaji.

Third-party providers must also focus on enhancing their customer service capabilities, ensuring transparency in tracking and delivery, and providing flexible return policies to meet and exceed these heightened expectations.

Consequently, to stay competitive and maintain market hold against huge competitors like Amazon and Walmart, Balaji points out that 3PLs are implementing strategies such as: collaborating with shipping carriers and other 3PL providers; implementing digital automation for agile inventory management; engaging streamlined omni-channel fulfillment; and offering exceptional customer support