Third Party Logistics (3PL) Market

Market Overview

The global third-party logistics (3PL) market revenue was valued at USD 1,044 billion in 2022. It is projected to reach USD 2,190 billion by 2031, growing at a CAGR of 8.58% during the forecast period (2023-2031). The 3PL market is growing worldwide, with different regions having different drivers. In North America, partnerships are the key to success. In Asia-Pacific, China's export boom and India's maritime projects fuel the demand. In Europe, retail and e-commerce sectors lead the growth. In Latin America, technology helps overcome infrastructure issues. In the Middle East, e-commerce and infrastructure development boost the investment.

Third-party logistics (3PL) is the method of outsourcing warehouse management operations, inventory operations, and shipping services across the globe. These services also augment the order fulfillment operations, transportation, freight forwarding, picking, and packing. Third-party logistics (3PL) focuses on the entire supply chain management operations, from the package pickup to the delivery of the products. The increasing trend of utilization of these services due to the emergence of distribution outsourcing drives market growth.

Market Dynamics

Market Drivers

Ability to Elevate Customer Experience Standards and Effectively Manage Demand Fluctuations

Every market has a certain degree of demand fluctuations, and the manufacturers need to cope with the fluctuations. Third-Party Logistics (3PL) services provide effective inventory management and product warehousing. These solutions offered by these companies enable manufacturing companies to regulate their manufacturing operations without getting concerned about the proper storage of the manufactured products. Third-Party Logistics also works to maintain a supply of the company's products across the various regions in the market, which helps the company increase its product availability across the markets. Third-Party Logistics offers distribution, shipping, and warehousing of the products of manufacturers. Significant improvement in the overall supply chain management is anticipated to bolster the use of Third Party Logistics during the forecast years.

Better Warehousing Management Solutions to Focus on Growth across Potential Regions in Market

Many companies wish to enter into untapped markets to improve their performance and sales footprints across multiple regions. Although, limitations such as the unavailability of established shipping and delivery solutions and the need for warehouse infrastructure and inventory storage restrict these companies from operating across multiple regions. Third-party logistics provides the manufacturers with all these services and helps them improve their business in various potential regions.

The companies can increase their market penetration and product availability without making substantial investments in warehouse establishment and strengthening their distribution chain. Thus, third-party logistics (3PL) stands very useful for organizations trying to improve their global sales footprints. The tier 2 and tier 3 players are expected to contribute significantly as these companies do not possess a strong distribution channel and warehouse infrastructure outside their regional market. Third-party logistics services stand as the optimum solution for these companies to initiate operations in the potential regions.

Market Restraints

Less Interaction Within the Transit Lot of Products and Less Control over the Process of Delivery

Third-Party Logistics operators pick up the packages from the manufacturing facilities and initiate shipping and inventory management operations of these products as per the requirements of the products at different regions. Although, manufacturers tend to lose control of the supply chain management of their products. The interactions of an unknown third-party supplier with the products of the company may restrict certain manufacturers from using third-party logistics services. The manufacturer also faces difficulties in tracking the process of delivery, further reducing the hold and control on the in-transit shipments. Additionally, during quality assurance and testing, companies usually identify anomalies and need to alter the manufactured products to eliminate the problems. The companies operating their own delivery process can perform this task efficiently, while the manufacturers operating with third-party logistics face difficulties.

Regional Analysis

The global market is segmented into four regions: North America, Europe, Asia Pacific, and LAMEA.

North America's third-party logistics (3PL) market, owing to the rising partnership and collaboration activities between third-party logistics providers. Out of total logistics operations, about 12.4% is carried out using third-party logistics (3PL) service providers. The increasing prominence of contract carriage service in the U.S. and the presence of prominent players, such as UPS Supply Chain Solutions Inc., and XPO Logistics, Inc., drive the market growth. In addition, several government measures are implemented to further accelerate the North American Third-party logistics sector. These projects are implemented in order to improve market-influencing technologies. These initiatives provide numerous benefits to Third-party logistics companies in the region, fostering the expansion of the region.

Asia-Pacific is expected to witness the highest growth rate in the third-party logistics (3PL) market. China is anticipated to emerge as a significant contributor to the third-party logistics market in the Asia Pacific region. Robust export activities of the manufacturers operating in China are anticipated to drive the growth of the market in the region. The use of third-party logistics for cross-border trade is anticipated to significantly contribute to the development of the market. The maritime transport development initiatives by the government of India are anticipated to boost market growth. As per the government initiative, India is aiming to surplus the capacity of its 18 major ports by 25% to increase and augment maritime shipments. Similarly, the Vietnam government is taking decisive steps in making noteworthy developments in the marine transport network.

Europe is expected to witness substantial growth over the forecast period. The region's largest retail and e-commerce industries are among the largest users of third-party logistics. In extremely competitive markets, such as the United Kingdom, delivery time is a crucial issue for shops and online stores. Therefore, businesses outsource their logistics to delivery professionals, and both large and small stores can compete with next-day, on-demand delivery. The U.K. is one of the world's leading trade nations, exporting the majority of its goods to numerous European nations. Due to developed infrastructure, a sophisticated supply chain network, and the presence of global businesses, the freight and logistics market in the country has formed a solid foundation over the years.

The growth of the Latin American logistics market is propelled by an increase in technologically driven logistics services, a surge in the adoption of IoT-enabled linked devices, and the expansion of the e-commerce market. However, the lack of necessary infrastructure, the high cost of logistics, and the lack of manufacturers' control over logistics services restrict the market's expansion. The governments of the Middle Eastern countries are supporting the 3PL and logistics sector through a variety of initiatives, laws, and investment incentives to entice firms to invest in the country and provide customers with logistical services. Additionally, e-commerce has emerged as a major market driver in the region. The number of e-commerce sales has increased; local vendors, merchants, wholesalers, and manufacturing units are focused on online channels to boost their sales. In addition, the advent of automated material handling equipment and the increasing use of GPS-enabled and RFID-based gadgets is driving up demand for logistic services. In addition, the UAE government's increased investments in renovating existing seaports, distribution centers, free zones, and freight terminals, among other things, stimulate the need for logistic services.

Segmental Analysis

Based on the mode of transport, the market is segmented into ground/roadways transport, waterways/ maritime transport, railways transport, and air transport.

The ground transport segment is estimated to account for a significant share of the global market. Additionally, the development of ground logistics infrastructure and government efforts to develop safety standards for the vehicles used for shipping applications and construction of roads and infrastructure drive the segment growth.

Based on industry verticals, the market is segmented into e-commerce and retail, healthcare and pharmaceuticals, manufacturing, and automotive.

The manufacturing sector holds the largest market share because of the increasing globalization and sales of products across national borders. The manufacturing sector requires raw materials and other components from many regional sources. The participation of numerous suppliers and distributors makes logistics a difficult task. Consequently, the manufacturing industry outsources its logistics operations due to the benefits offered, including lower transportation costs, supply chain visibility, inventory and vendor management, business process development, and enhanced customer services.

Based on service, the market is segmented into freight forwarding, warehousing and distribution, domestic transportation management, value-added logistics services, and international transportation management.

Domestic Transportation Management controlled the greatest proportion of the market. Domestic transportation management services are provided in collaboration with freight brokers, who deal with the origin and destination of shipments. Increasing trade movement between warehouse unloading docks and warehouses, growing carrier rates, a surge in cross-docking services, and a rising fuel surcharge are driving the segment's expansion. Increasing consumer demand in industries like retail and healthcare and the consistent GDP growth of a number of nations contribute to the segment's expansion. The ongoing expansion of global economic activities and the expansion of the e-commerce industry have increased the demand for international transportation management services.

Recent Developments

• November 2022- Amazon has begun offering its transportation and logistics network as a service to third-party merchants, enterprises, and direct-to-consumer brands in India. The e-commerce giant is attempting to mimic a model it has been testing for several months in the United States.
• June 2022- FedEx Corporation and FourKites established a strategic alliance that will give organisations with enhanced capabilities for real-time visibility that will assist them in overcoming their most pervasive supply chain challenges, becoming more efficient, and unlocking new growth opportunities.