3PL Services Procurement Intelligence Report, 2023 - 2030 (Revenue Forecast, Supplier Ranking & Matrix, Emerging Technologies, Pricing Models, Cost Structure, Engagement & Operating Model, Competitive Landscape)

Category Overview

“The 3PL category is mainly driven by the increasing need to reduce last mile deliveries and the demand for better traceability across supply chain processes.”

The third-party logistics (3PL) category is expected to grow at a CAGR of 10.7% from 2023 to 2030. With increased growth in the e-commerce sector, there is an increasing demand for better traceability and end-to-end visibility across the supply chain processes. More and more companies are focusing on reducing the distance of last-mile deliveries by placing fulfillment hubs at more convenient locations. 3PL companies are utilizing advanced technology to expedite deliveries and improve operational efficiencies by reducing handling points. All such factors are fueling the growth. The different segments considered for this report include - value-added logistics services, warehousing and distribution, international transportation, domestic transportation management, and dedicated contract carriage/ freight forwarding. 

The global 3PL category was valued at USD 1,034.43 billion in 2022. Due to an increase in direct-to-consumer orders, many 3PLs are partnering with 4PLs to expand their inventory and transportation capabilities. Seamless system integration has become one of the top trends - as there is an increased need for enhanced connectivity between warehouse management systems, shopping carts, and other platforms to meet the increasing consumer demand. Currently, the North American region accounts for almost 35% of the overall share followed by APAC, and Europe. The APAC 3PL segment is expected to witness the fastest growth.

Continuous technological innovations and advancements such as seamless e-commerce integrations, warehouse management systems, automated order fulfillment, inventory management systems, easy post-purchase experience, automated payment reconciliation, order management systems, and returns management are expected to aid catgegory expansion. Many large warehouses are increasingly using robotic picking arms and vision systems to minimize errors and increase productivity.      

For instance, in February 2023, Brightpick developed an advanced fulfillment robot named Autopicker. It can pick and consolidate orders in warehouse aisles. The robot combines a mobile base and a picking arm for order fulfillment. Autonomous mobile robots can move anywhere around the facility, obtain storage totes from shelves, and pick individual items from the totes. By using such automated robots, the company has been able to reduce picking labor by 95% and cut costs for order fulfillment by 50%. The Autopicker works with standard 10-ft shelves and totes and can be easily integrated with any WMS and other existing platforms/systems. As a result, companies can increase storage density by 250%. A typical Autopicker fleet consists of 15 to 100 robots and can optimize the entire fulfillment process.

On the other hand, with the advent of 5G, AR is being increasingly used by companies in the entire supply chain process. It is used in different stages – from sourcing, production, storage, and delivery to even return delivery. More than 30% of 3PL companies are using AR technology (such as smart glasses and other wearable devices) in manufacturing and transportation to gain critical insights about package content, weight, handling, and destination. Together with the Internet of Things (IoT), companies achieve higher time and cost savings, gain better visibility across the supply chain, and improve the handling of goods. For instance, with AR technology in warehousing, managers and staff can visualize the warehouse layout and check if any experiments (such as changing the entire layout structure, product placements, terminal displays, shelf adjustments, and others) are possible. In the case of inventory management, managers and staff can manage all the stocks hands-free using AR. The technology provides higher accuracy during inventory handling.

Similarly, for instance, IoT-enabled real-time tracking helps 3PL companies improve intermodal modes of transportation as they can plan efficient shipment routes and reduce delivery times. As a result, this allows for greater visibility across the process. The generated data can be analyzed to gain critical insights and create time-saving or customized routes, change last-mile LTL delivery options, or create separate shipments over a greater number of trucks. RFID Sensors in smart containers help 3PL companies understand dramatic variations in atmospheric pressure by providing detailed information about the surrounding environment by type of units.

Supplier Intelligence

“What is the nature of the category? How are the players expanding their capabilities?”

The global 3PL category features a fragmented landscape with many top players competing for the major share. Many large corporations are strategically partnering with mid-sized or small-sized companies to leverage their regional logistics capabilities, expand their local market knowledge, reduce overhead costs, and achieve better profit margins. Many regional players are expanding into new places and helping their clients in expanding their geographic serviceability. New competitors are making a foray into the 3PL category with customized and industry-specific services. In-house logistics is the only substitute for 3PL services. But in-house logistics involves a high level of complexity and hence poses a minimal threat to 3PL services. Buyers can easily switch between providers without incurring any significant switching costs as there are several 3PL providers.

Key suppliers covered in the category:

• United Parcel Service

• DHL

• Kuehne + Nagel

• FedEx Corporation

• Nippon Express

• DB Schenker

• C.H. Robinson

• CEVA Logistics

• Burris Logistics

• XPO Logistics

• J.B Hunt Transport Services 

Pricing and Cost Intelligence

“Which variables influence the prices of 3PL services? What are the largest cost components?”

The two biggest cost components of a 3PL service are transportation and warehousing. Together they account for almost 70% of the total costs. The overall transportation cost can depend on the mode of service - such as air, rail, sea, or road. The warehousing costs can be further broken into order picking storage, shipping, receiving, and others. Inventory carrying and admin costs also influence the cost of the logistics services.

Fluctuations in freight costs significantly impact the 3PL service cost. For instance, in the third week of February 2023, the composite index had reduced by 2% and dropped by 79% compared to February 2022. Drewry’s WCI composite index of USD 1,955 per 40-foot container was 81% below the peak of USD 10,377 compared to September 2021. The index on average, however, remained 38% higher than average compared to 2019 (pre-pandemic) rates of USD 1,420. Freight rates on Rotterdam to New York had decreased by USD 335 to reach USD 5,675 per feu in February 2023. As of April 2023, the freight rates to ship a 40 feet container to the U.S. from Asia have dropped by 80% since April 2022. The major reasons are the reduction in consumer spending, the trade war between the U.S. and China, and excess inventory.

The following chart below provides a breakdown of the cost structure associated with 3PL services. The fixed costs include warehousing, transportation, and inventory management. The cost of warehousing can depend on multiple cost components, which have been illustrated below. 

Sourcing Intelligence

“Which nation is the preferred destination for sourcing?

China is one of the most preferred destinations for 3PL services in terms of sourcing intelligence. The cost of warehousing and transportation is low compared to other leading countries such as the U.K., Germany, and the U.S. Since, 2019, the freight volumes in China have increased steadily and had risen by almost 14% in major trade lanes between China and North America. Labor costs are low in China due to lower operational costs and lower warehousing costs. The Chinese government is providing huge incentives to companies building warehouses in special zones. The government has also decreased the import and export taxes. Most of the warehouses have started utilizing integrated WMS, and IMS software which provides better traceability and visibility across the supply chain processes. Additionally, most of them are located near ports or airports, which enables companies to meet consumer demands faster.

In China, since 2021, large-scale freight forwarders have merged with many contract logistics providers to generate higher shares of revenue. For instance, The China Logistics Group merged with five state-owned companies in 2021. They are CTS International Logistics, China Logistics, China National Packaging, China Railway Materials Group, and China National Materials Storage and Transportation. Together, the Group manages 42 warehouses, 120 railway lines, and 4.95 million square meters of other storage facilities. The Group, through this merger, had a line of three million vehicles globally.

In China, major 3PL providers also increased their freight capacity. For instance, in 2021, Cainiao purchased a 15% equity in Air China Cargo and entered long-term agreements with Atlas Air and LATAM Airlines Group. Global players like Maersk and Kuehne and Nagel have also been expanding in this region.

From a sourcing perspective, most suppliers opt for a basic provider model or an approved provider model to achieve higher cost savings, reduce security-related risks, and ensure better flexibility in customization.

The logistics providers are increasing their investments in new technology to develop new products that aid the automation process and reduce transportation time and handling costs. Service providers are also engaging with third-party suppliers, acquiring, and partnering with regional suppliers that have adopted a global delivery model to reduce risks to buyers. Clients should make sure that their supply chains are free from inactive suppliers and start focusing on strategic partnerships for value-added sourcing.

The 3PL Procurement Intelligence report also provides details regarding day one, quick wins, portfolio analysis, key negotiation strategies of key suppliers, and low-cost/best-cost sourcing analysis. 

3PL Procurement Intelligence Report Scope