Logistics Outsourcing Market Size, Share & Trends Analysis Report By Type (Material Management, Supply Chain Management, Distribution Management, Shipment Packaging, Channel Management), By Mode of Transport (Airways, Railways, Waterways, Roadways), By End-User (Food and Beverages, Oil and Gas, E-Commerce, Automotive, Consumer Goods, Government and Defense) and By Region(North America, Europe, APAC, Middle East and Africa, LATAM) Forecasts, 2023-2031

Market Overview

The global logistics outsourcing market size was valued at USD 1,003.71 million in 2022. It is estimated to reach USD 1,490.46 million by 2031, growing at a CAGR of 4.49% during the forecast period (2023–2031).

The practice of subcontracting the various elements of a company's supply chain and logistics operations to a third-party service provider is known as logistics outsourcing. This includes tasks like order fulfillment, warehousing, transportation, and inventory management. Businesses outsource logistics to lower costs, boost productivity, and enhance customer service. Depending on their requirements, businesses may employ straightforward or intricate logistical solutions. Damage, missed deadlines, or incomplete shipments could occur if they do not have the means to manage their resources effectively. In these cases, a corporation may choose to hire outside help with logistics.

Highlights

• The distribution management segment is the largest contributor to the market by type.
• The highway transportation segment is the highest contributor to the market by mode of transportation.
• Asia-Pacific is the most significant global logistics outsourcing market shareholder by region.

Market Dynamics

Global Logistics Outsourcing Market Drivers

Increasing Demand from the Automotive Sector

The need for both commercial and passenger automobiles is increasing, which has resulted in a rapid expansion of the automotive sector. Carsurance predicts the global automotive market will be worth USD 9 trillion by 2030. This shows that the automotive industry will grow quickly over the next ten years. Other factors, such as declining vehicle prices, rising incomes for individuals, rising standards of living, and a booming transportation sector, can also be linked to the expansion of the automotive industry.

Any automobile is made up of many different parts, many of which are produced both internally and externally to cut costs. As a result, moving components from one location to another is crucial, and managing inventory and sourcing raw materials effectively are both necessary. Therefore, the automotive industry outsources the logistics, shipping, and inventory control of components, raw materials, and finished goods. Automotive manufacturers can scale up and accelerate their manufacturing processes more effectively while keeping an eye on overall costs thanks to logistics outsourcing. As the automotive industry expands, component production has multiplied many times over. Consequently, there is a greater need for logistics outsourcing.

Global Logistics Outsourcing Market Restraints

Risks Related to Logistics Outsourcing

Even though the end-user industries are rapidly adopting logistics outsourcing, some risks are still involved that cannot be disregarded. The risks can be divided into financial, operational, and strategic. The strategic risks include losing control over logistics operations, losing customer contact, the possibility of confidentiality breaches resulting in the disclosure of sensitive information, and a limited ability to respond to customer needs. Financial risks include loss of money, inflated fees, and challenges in estimating cost savings. Operational risks include subpar staff at logistic providers, a lack of sufficient skill, an inability to handle the unique requirements of end-user industries, disruptions in operations, and others. These serious risks could hurt the end-user industries. Due to the potential risk of a decline in demand for the logistics they provide, this may have an impact on their decision to outsource logistics.

Global Logistics Outsourcing Market Opportunities

Increasing Adoption of Contemporary Technologies by Industry Players

Businesses in the logistics outsourcing industry are refocusing on implementing cutting-edge technologies like robotics, artificial intelligence, machine learning, deep learning, data analytics, and many others. The adoption of these technologies shows that logistics outsourcing providers emphasize streamlining operations, improving logistics process efficiency, lowering operational costs, and better meeting the needs of end-user industries. In addition, adopting technologies like artificial intelligence (AI) and data analytics aids in better-anticipating customer needs, scaling operations, and exploring new opportunities based on historical data and areas for improvement. Robotics, self-driving cars, automatic dispatching, and other automation technologies are expected to improve the speed and efficiency of logistical operations that provide supply chains for robots to the end-user industries. It is anticipated that these technologies will lessen the effects of the risks related to outsourcing logistics.

Regional Analysis

Based on region, the global logistics outsourcing market is divided into North America, Europe, Asia-Pacific, and RoW.

Asia-Pacific Dominates the Global Market

Asia-Pacific is the most significant global logistics outsourcing market shareholder and is anticipated to exhibit a CAGR of 5.42% during the forecast period. In countries like China, which has the world's largest automotive industry, the industry is one of the most significant industries in the outsourcing market. In China, Kuehne Nagel has been steadily growing its market share. India, the fourth-largest automotive market in the world, is also expected to expand by 10% in 2022 due to solid underlying demand that reflects the global economic recovery and customers' preference for personal vehicles over public transportation. The region's expanding e-commerce also drives up demand for logistical outsourcing in Asia-Pacific.

In addition, Asia-Pacific dominates the global e-commerce market with high Internet and mobile penetration rates and a predominance of young and middle-class people. Numerous SMEs in the area also use the Internet to expand their business opportunities. E-commerce companies of all sizes can benefit from logistics outsourcing, including simple business management, cutting-edge technological solutions, reduced risk, and scalability. Furthermore, Asia is expected to continue to dominate the eCommerce market worldwide in 2022. For instance, early 2021 saw Chinese consumers conduct over a third of all online trades, with Asia accounting for about 60% of global online retail sales.

Europe is predicted to exhibit a CAGR of 3.89% over the forecast period. The European Union scored 3.46 on the Logistics Performance Index: Quality of Trade and Transport-Related Infrastructure of the World Bank, which is good on a scale where 1 is considered low and 5 is considered high. In addition, e-commerce has a sizable impact on the EU's logistics industry. The logistics sector in Europe attracted over EUR 39 billion in investments, of which major investments were made in e-commerce logistics in 2020, with leasing activity increasing by 69% over 2019 and leasing agreements covering a total of 1 million square meters with companies like XPO Logistics, SF Express, DHL, and others. This indicates the importance of the e-commerce industry to the logistics sector. According to GTAI, Germany is the top European country for the logistics industry, with over EUR 280 billion in revenue in 2018. This figure was higher than the combined revenue of France and the UK for the logistics industry. Germany has placed first three times in the World Bank's biannual Logistics Performance Index (LPI) ranking of 160 nations.

North America is expected to expand significantly over the forecast period. In July 2020, the North America Free Trade Agreement (NAFTA) between the three nations was replaced by the U.S.-Mexico-Canada Agreement (USMCA). This agreement is anticipated to make it possible to conduct trade worth more than USD 1.2 trillion which suggests that the logistics sector has countless opportunities. Given that the goods covered by this agreement are exempt from tariffs and custom duties, the streamlined customs procedures are anticipated to be hassle-free and reduce the overall transportation time, facilitating the simplification of logistics. The U.S. held the largest share of the North American market in 2019, with USD 167.12 billion and is projected to grow to USD 235.73 billion by 2027. California has the most vehicles per capita in the United States. The largest US end-user industries for third-party logistics are automotive and e-commerce. In the US, trucks or other forms of road transportation account for more than 50% of third-party logistics.

In Latin America, the market for logistics outsourcing is expanding thanks to growing tech-driven logistics services. RFID, Bluetooth, and machine learning are increasingly used in logistics services, along with recently developed technologies like drone delivery and driverless autos. Due to these expanding technological developments, the Latin American market is expanding. In addition, Dubai has taken steps to strengthen its infrastructure and technology to establish an excellent logistics infrastructure and well-integrated transportation system.

The Middle East and Africa's market is expanding thanks to rising e-commerce. Since the COVID-19 pandemic changed consumers' shopping habits by forcing them to shop online, the United Arab Emirates has become the Middle East and North Africa's fastest-growing e-commerce market. The market's expansion in the area is supported by the substantial growth of e-commerce, which increases investments in e-commerce logistics-related infrastructure and technology. In addition, the pharmaceutical sector is expanding in Middle Eastern nations like Saudi Arabia and the UAE.

Segmental Analysis

The global logistics outsourcing market is segmented into type, mode of transport, and end-user.

Based on type, the global outsourcing market is divided into material management, supply chain management, distribution management, shipment packaging, and channel management.

The distribution management segment is the largest contributor to the market and is expected to grow at a CAGR of 5.42% over the forecast period. The term "distribution management" refers to various tasks and procedures, including packaging, inventory, warehousing, supply chain, logistics, and the movement of goods from a supplier or manufacturer to the sale point. The companies outsource their distribution management to cut shipping times, enhance customer satisfaction, and maintain low supply chain costs. Additionally, the COVID-19 pandemic increased the trend of outsourcing distribution management as businesses now recognize the advantages of doing so to fortify their supply chains against unforeseen obstacles. The businesses disrupted the e-commerce sector with free 2-day shipping and raised consumer expectations, forcing start-ups to outsource distribution management. Since outsourcing warehousing and distribution typically entails partnering with a logistics company or 3PL provider for managing warehousing or distribution locations across the nation to store goods and ship out orders, outsourcing is frequently more efficient and cost-effective for small and medium-sized businesses.

Faster transit times are another factor that drives distribution management outsourcing. Orders can be dispatched from a state or two away rather than across the country because the products are kept close to retailers and customers. In addition, shorter travel distances are more cost-effective for consumers' wallets. However, there are additional costs associated with outsourcing distribution services. There is only a slight increase because the new facilities typically have lower shipping costs. Even though adding distribution channels raises distributors' costs, the shortened shipping time for customers makes it worthwhile. Additionally, businesses like DHL Supply Chain, which offers third-party logistics and supply chain management, have expanded their operations to meet customer demand, fueling the expansion of the global logistics outsourcing market.

Based on the mode of transport, the global outsourcing market is divided into air transportation, railways transportation, sea transportation, and highway transportation.

The highway transportation segment is the highest contributor to the market and is anticipated to grow at a CAGR of 5.0% during the forecast period. The automotive and e-commerce industries primarily use highway transportation as a means of outbound logistics of transportation of goods from manufacturers to dealers. Transportation by road offers many services that lower costs and increase flexibility, including door-to-door service, quick short-distance delivery, service in rural areas, and many more. In addition, roadways currently account for a significant portion of the logistics in the e-commerce industry. Several e-commerce players, including Amazon, eBay, and Flipkart, use third-party roadways logistics outsourcing services to ensure on-time product delivery.

In the automotive industry, finished vehicles are delivered from the factories to the dealers using specially designed carrier trailer trucks. In order to place orders for passenger vehicles, dealers must pay the automakers in advance. Furthermore, fast-moving consumer goods are typically transported by the e-commerce sector and stored in local warehouses before being delivered to customers. The success of the roadway mode of transportation is primarily due to the development of road infrastructure and the ensuing improvement in delivery time performance and less damage in transit.

Based on end-user, the global logistics outsourcing market is divided into food and beverages, oil and gas, e-commerce, automotive, consumer goods, and government and defense.

The consumer goods segment owns the highest market share and is expected to exhibit a CAGR of 2.91% over the forecast period. The effectiveness of the supply chain determines the success of a consumer goods company in the market. The consumer goods industry has always been competitive. The logistics requirements in the consumer goods sector vary greatly depending on the type of consumer goods, including both durable and non-durable goods. In addition, consumer goods companies have turned to outsourcing logistics as a result of rising competition, rising costs of maintaining supply chains and inventory, and rising numbers of 3rd party, 4th party, and 5th-party logistics so they can concentrate on their core businesses, save crucial resources, achieve operational flexibility, lower costs, and, most importantly, maximize customer satisfaction. Consumer goods companies are outsourcing cross-docking requirements to increase efficiency. Consumer goods companies can reach the market more quickly thanks to the streamlined operations made possible by outsourcing logistics. Logistics outsourcing is anticipated to significantly affect the business's future success.

Recent Developments

• September 2022- Transportation and IT consultancy TransImpact stated it would outsource its managed logistics solutions business to Echo Global Logistics in partnership.