LOGISTICS: IT SOLUTIONS & 3PL SURVEY - 3PL industry in 2006: strong revenue growth but slower profit

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Profitability slowdown was temporary, says Armstrong & AssociatesBy Peter A. Buxbaum, AJOTThe phenomenon of globalization and the continuing trend toward outsourcing are driving strong growth in most segments of the third-party logistics industry globally. Third-party logistics outsourcing continues to grow at about three times the rate of overall US economic growth. Those were among the key conclusions drawn in a report on the third-party logistics industry, “US and Global Third-Party Logistics, Financial and Acquisition Results for 2006,” recently released by Armstrong & Associates, Inc.
Third-party logistics gross revenues for the US market reached over $110 billion for the first time in 2006, according to the Armstrong report. Gross revenues for the industry hit $113.6 billion domestically, a 9.5% increase over 2005, while profits stood at $53.1 billion. Revenues reached $100 billion for the first time in 2005 and have grown from $30.8 billion in 1996. The most profitable 3PLs in 2006 were CH Robinson, Hub Group, BNSF Logistics, Expeditors, DHL Global, Kuehne + Nagel, Cat Logistics, and UTi Integrated Logistics.
Armstrong & Associates, Inc., based in Stoughton, WI, is a supply chain management consulting firm specializing in market research, mergers and acquisitions, and outsourcing. The company publishes “Who’s Who In Logistics,” “Armstrong’s Guide to Global Supply Chain Management,” and other occasional papers, and maintains databases of warehousing companies, freight forwarders, and contract logistics and dedicated contract carriage providers.
Armstrong divides the third party logistics industry into four operational segments: international transportation management, domestic transportation management, value-added warehousing and distribution, and dedicated contract carriage. Globalization and outsourcing are driving growth primarily in the first three of those segments, according to Armstrong. (A fifth segment, the contract logistics software segment, accounted for $3 billion of the industry’s total revenues in 2006.)
Profit margins for the industry as a whole in 2006 were down slightly from 2005 due to a fourth quarter economic slowdown. Earnings before interest and taxes were 8.6% and net income margins in relation to net revenue were 5.4% for the industry as a whole. Armstrong calculated the compound annual growth rate in net revenue since 1995 for all segments of the 3PL industry at 16.9%.
“Continued economic expansion in China and the Asia Pacific markets”
Within the US market, the international transportation management segment, which includes major components of freight forwarding and global supply chain management, posted the largest net revenue increases in the industry at 17.7%. Gross revenues stood at $42.4 billion, while net revenues amounted to $15.9 billion.
“Kuehne + Nagel, Expeditors, DHL Global and APL all had net income margins of 10% or greater compared to net revenue,” the report said. Growth in international transportation management “is primarily a reflection of continued economic expansion in China and the Asia Pacific markets.”
The domestic transportation management segment, which involves freight brokerage, posted growth of 12% in net revenues. Gross revenues were $33.8 billion, while net revenues were $6.6 billion. However, net revenue growth in the domestic transportation management segement-11.1% in 2006-slipped from 18% in 2005, and net income margin dropped by one percent.
“We attribute these changes to the US economic slowdown,” the report said. “They are temporary downturns and have no significant long term importance for key players in this segment.”
C.H. Robinson ended the year with net revenues of $1.1 billion and a net income margin of 24.7%, the report noted. BNSF Logistics, Hub, NFI, and Werner all had double digit net income margins. BAX, BNSF, C.H. Robinson, Meridian IQ, and NFI all grew by 20% or more in this segment, according to the report. Hub, Penske, Ryder, and Werner each grew by at least 10%.

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Peter Buxbaum has been writing about international trade and transportation, as well as security, defense, technology, and foreign policy, for over 20 years. Besides contributing to the AJOT, Buxbaum's work has appeared in such leading publications as [em]Fortune, Forbes, Chief Executive, Computerworld, and Jane's Defence Weekly[/em]. He was educated at Columbia University.