Room to grow

Room to grow

Ditto truckers and air carriers. Bulk carriers are enjoying flush times driven by strong demand for commodities, but theirs is an up-or-down business that doesn't stay rosy forever.

So if you're looking for growth and profitability in the supply-chain industry, the place to find it is among 3PLs. Third-party logistics providers, particularly the non-asset-based variety, continue to prosper, although their expansion has slowed with the economy.

The reason is the development of global supply chains, and the complexities they add. "Third-party logistics is pretty much a function of industrial and post-industrial societies," explains 3PLs guru Dick Armstrong, who with his son Evan publishes the authoritative Who's Who in 3PLs. They discussed industry trends last month at the annual conference of the Council of Supply Chain Management Professionals.

In the U.S., the 3PL industry has posted a compound annual growth rate of 12.6 percent since 1996, or about four times the rate of GDP growth. In countries that haven't fully industrialized, 3PL growth is about twice the rate of GDP expansion.

Third-party logistics companies have moved beyond basic warehousing and transportation services into supply-chain management that pulls together the manufacturing, delivery, warehousing, transportation and coordination of the goods that a developed economy requires.

Growth of 3PLs went largely unnoticed outside the specialized field of logistics until a year or two ago, when private-equity firms saw what was going on and got in on the action. Dick Armstrong predicts that the slowing economy will dampen investors' appetites for additional high-multiple buyouts. Instead, he expects more "strategic acquisitions" by companies already in the industry.

Long term, 3PLs' prospects are good. More than 80 percent of Fortune 500 companies employ 3PLs, and their use is increasing among smaller firms. As companies become more sophisticated about supply-chain management, they're doing more outsourcing and need 3PLs' technology and expertise.

Many markets remain untapped. In Europe, decades of vertical integration by forwarders, warehouse operators and transportation providers have produced a strong 3PL industry. But even there, Armstrong estimates 3PLs' revenue at only about 10 percent of total logistics spending. Com-parable figures for North America are 8.5 percent; Asia, 7.5 percent; and Latin America, 6 percent.

Nowhere are long-term growth prospects brighter than in China, which Evan Armstrong describes as "a market in its infancy." He said that as Chinese supply chains become more sophisticated, demand for 3PLs will continue to increase. It's a logical progression.