Armstrong & Associates: 3PLs Achieve Best Growth and M&A Year on Record
July 15, 2022
to Armstrong & Associates, Inc. (A&A’s) newest report, “A Roaring 2021:
Demand Drives 3PLs to the Best Growth and M&A Year on Record – Latest
Third-Party Logistics Market Results and Predictions for 2022” strong
consumer demand, continued supply chain bottlenecks, and tight carrier
capacity sent air, ground, and ocean transportation rates soaring to
historic levels in 2021 as shippers leaned on Third-Party Logistics
Providers (3PLs) to bolster inventories and avoid product stock outs.
After the volatile 2020 U.S. COVID-driven Third-Party Logistics Market
(3PL) created growth opportunities for 3PLs, in particular those with
strong carrier management, e-commerce, and air freight forwarding
capabilities, year-over-year 2021 saw the fastest 3PL growth since we
began estimating the market size in 1995. However, 3PL Market segment
growth was uneven.
To meet demand, 3PLs in both ITM and DTM increasingly tapped the spot
market to source carriers to cover shipments. While strong demand drove
growth across the 3PL Market, the true leaders were those 3PLs with
strong carrier management skills that have technologically innovated
allowing them to efficiently tap long-standing carrier relationships to
cover shipper demand versus being over reliant on using load boards or
traditional means to buy capacity at spot market rates.
International Transportation Management (ITM), which consists of air and
ocean freight forwarding, customs brokerage, and complementary
value-added services, led all 3PL segments with revenue growth.
Overall, ITM realized an unheard-of 74.9% gross revenue gain in 2021
increasing to $122.4 billion, while underlying global ocean carrier
container rates more than doubled from 2020 and air freight rates
trended up peaking in December of 2021. While having a lower growth rate
than overall gross revenue due to a tight carrier capacity market and
high spot market rates, net revenue increased a healthy 44.6% to $35.6
Non-asset based Domestic Transportation Management (DTM) includes
Freight Brokerage which is 84% of segment revenues and Managed
Transportation which accounts for 16%. Like its ITM brethren, DTM 3PLs
scrambled to find carrier capacity to meet shipper demand in 2021.
Year-over-year gross revenue increased 52.4% to $139 billion and net
revenue increased 50.2% to $19.8 billion as strong demand and volatility
in motor carrier capacity quickly increased spot market rates
compressing segment gross margins to 14.2% from 16.1% in pre-pandemic
The Value-Added Warehousing and Distribution (VAWD) 3PL segment did very
well in 2021. Gross revenue increased 17% to $54.6 billion and net
revenue expanded 15.2% to $41.1 billion. Most VAWD 3PLs have full
warehouses and have participated to some extent in the rapid growth of
e-commerce fulfillment which continues to be one of the fastest growing
domestic 3PL subsegments with annual growth of 24% from 2017 to 2021.
The asset-heavy Dedicated Contract Carriage (DCC) 3PL segment rounded
out the 2021 growth story with more modest growth. Gross revenue
increased 15.3% to $23.1 billion and net revenue growth was 14.7% to $23
billion. Unlike its non-asset DTM brethren, DCC’s growth is limited by
each provider’s ability to attract drivers and invest capital in
equipment. Those 3PLs with freight brokerages which could handle
“overflow” business from DCC operations tended to do well.
Total 3PL Segment net revenues (gross revenues less purchased
transportation) grew 27.8% to $119.4 billion reflecting gross margin
compression due to a volatile carrier sourcing market and transportation
management 3PLs spending more to secure hard-to-find carrier capacity.
The overall gross margin for all segments declined from 40% to 35%.
3PL market revenues reached $1.4 trillion in 2021 resulting in a
bounce-back increase of 41.8% versus the mere 7.7% increase seen in 2020
over 2019. The ITM segment led the way at 60.8% year‐over‐year growth
due to continued COVID‐19 response and increased international freight
rates. While air freight volumes are now above pre‐COVID-19 pandemic
levels, even with ongoing additions to increase air carrier capacity, it
is still under pre‐COVID-19 pandemic levels.
There were an astounding 25 large M&A transactions, with purchase prices
over $100 million, among 3PLs in 2021. This is over eight times the
number of large acquisitions made in 1999, when we first started
tracking them, and over three times the number of transactions seen just
last year. The most notable being Kuehne + Nagel’s purchase of Apex
Logistics International for approximately $1.5 billion. The combination
not only made Kuehne + Nagel the largest global air freight forwarder
handling over 2.2 million metric air tons in 2021, it is also the
largest 3PL globally, replacing DHL Supply Chain and Global Forwarding
in both instances, and continues to hold its place as the largest ocean