After an unprecedented 2021, what can the 3PL industry do for a recall?

For the third party logistics industry, there may never be another year like 2021.

According to an annual report from Armstrong & Associates Inc., the leading 3PL research and advisory firm, increased volumes and a focus on outsourced logistics capabilities to manage volatile inventory flows made 2021 the best all-time year for the trillion-dollar industry.

There’s more to come, according to company president Evan Armstrong. The U.S. 3PL industry is expected to post $414.1 billion in gross revenue in 2022, a 22% gain from 2021 levels, according to the report released in mid-July. Net revenues, which support transportation spending, are expected to approach $140 billion, an increase of almost 17%.

The Domestic Transportation Management (DTM) sub-group, which is one of four sub-categories that make up Armstrong’s 3PL world, will report a gross revenue gain of 25.6% to $174.6 billion . The DTM category, comprising truck brokerage and managed transportation, is the largest of the US subgroups tracked by Armstrong.

The other three sub-groups – international transport management (ITM) comprising air and ocean freight forwarding, customs brokerage and related value-added services, warehousing and distribution, and dedicated contract transport – will all record double-digit increases in gross and net income this year. .

The warehousing segment will bottom out in 2022. However, it should show significant strength in 2023 as storage demand remains high while other categories cool somewhat, Armstrong said.

In an interview earlier this week, Armstrong said he was surprised by the growth in the first half. The numbers will normalize over the rest of 2022 as supply chain bottlenecks ease, he said. Still, any meaningful leveling is a 2023 story, if it even happens then, he added.

Last year will be a tough act to follow, with the industry racking up numbers never seen before in the report’s 27-year history. According to the report, US-based ITM recorded an “unheard-of” gross revenue gain of 75% last year to $122.4 billion, propelled by soaring ocean and air freight rates. Net sales increased 44.6% to $35.6 billion despite tight capacity and high spot market rates.

The US DTM recorded a gross revenue gain of 52.4% to $139 billion. Net revenue rose 50.2% to $19.8 billion despite a squeeze in gross margins caused by rapidly rising spot market rates, according to report data.

The warehousing and distribution subcategory, which marked 2021 with nearly full warehouses, posted a 17% rise in gross revenue to $54.6 billion and a 15.2% increase in revenue net of $41.1 billion. The highly active DCC segment recorded less robust growth as it was constrained by shortages of drivers and equipment. Gross revenue increased 15.3% to $23.1 billion and net revenue increased 14.7% to $23 billion.

The increase was not limited to global US revenues which reached $1.4 trillion in 2021, a 41.8% year-over-year gain, and an exponential increase above the 7.7% year-over-year increase to 2020 compared to 2019. The ITM segment led the way with a 60.8% increase in gross revenue year-over-year ‘other.

These trends have not gone unnoticed by investors. There were 25 M&A deals last year in the 3PL space that were each valued at over $100 million, a figure the Armstrong report called “staggering”, noting that it was more three times the number of large transactions in 2020.

In the interview, Armstrong said the deals will run through 2022. However, they will likely be more strategic, with 3PLs buying out each other. Private equity involvement will be less unless the private equity firm already has 3PL assets.

Higher interest rates won’t be much of a deterrent. Capital costs are historically cheap, liquidity remains abundant and many transactions will be financed with equity rather than debt, he said.

One of the wild cards will be the direction of truck loading rates, Armstrong said. Spot rates have fallen sharply from their 2021 highs and are currently below contract rates. He expects contract rates to remain elevated through 2023 and spot rates to stabilize at levels in line with their five-year averages.

Armstrong advises its 3PL customers to enter into contracts with their shippers as soon as possible. “We will see a lot of renegotiations in the fourth quarter and the first quarter of 2023,” he said.