2024 Inbound Logistics Perspectives 3PL Market Research Report
Third-party logistics (3PL) providers are adapting to tougher-than-usual times these days. The industry has seen revenues fall, and demand for 3PL services isn’t growing at the pace we’ve seen in recent years. Also unfolding: Challenges such as inflation, high taxes, and government regulation increase costs for 3PLs.
Those are some of the insights that uncoil from the 2024 Inbound Logistics 3PL Perspectives report. This year, in our 19th annual report, we’ve analyzed data received from both 3PLs and shippers to learn about the services 3PLs offer today, understand what shippers look for in a 3PL, and explore the challenges that these partners face together.
Once you’ve read the report, please hop over to the Top 100 3PLs for 2024 to learn more about leading service partners and the value they continue to provide to the shippers that rely on them to scale their supply chains. Be sure to also check our Readers’ Choice Top 10 3PL Excellence Awards.
One year ago, shippers were giving a collective sigh of relief. Business was returning to normal after the massive disruptions of the pandemic. For each potential challenge we named in our 2023 survey, fewer shippers labeled it a major concern than in the previous year.
But in 2024, shippers are worried again. For example, while just 37% cited cutting transportation costs as a top challenge in 2023, this year 41% are seeking ways to spend less. Concern about business process improvement has increased by 8 points since 2023; concern about improving customer service has gone up 10 points; and concern about supply chain visibility has gone up 12 points.
Even some of the less pervasive challenges draw more concern this year. For example, in 2023, only 8% of shippers cited risk management and contingency planning as a major challenge. In 2024, as war, climate change, and other factors pose new risks for supply chains, that number stands at 13%.
The top challenge 3PLs face today stems from rising operational costs, an issue that 73% of our 3PL respondents cite this year, compared with 62% in 2023. On the other side of the ledger, 45% of 3PLs mention finding and retaining customers as a challenge, up by 12 points since 2023. So it’s no surprise more 3PLs this year face challenges in making a profit—26% compared with 16% in 2023.
As 3PLs understand well, one key to managing all of those challenges lies in technology. Technology investment is the second-biggest challenge that 3PLs face this year, cited by 62% of 3PL respondents. Another issue of serious concern is finding, training, and retaining qualified labor, mentioned by 57%.
3PLs continue to feel less pain about transportation capacity than during the worst of the COVID-induced crunch. This year 42% of respondents cite capacity as a challenge, compared with 46% in 2023 and 80% in 2022. While only 13% of shippers name risk management and contingency planning as a challenge, 3PLs are more heavily focused than their customers on things that could go wrong. Among 3PLs, 33% name that issue as a challenge.
3PLs continue to offer a broad range of logistics planning and execution services. They find capacity and manage relationships with carriers, route freight for customers, or provide technology that lets shippers plan efficient routes themselves. They might receive and store product, handle order fulfillment, or manage last-mile transportation.
Many 3PLs also offer more specialized services. Foremost among them is logistics/transportation consulting, in which a 3PLs applies its expertise and technology to questions such as where a shipper should locate distribution centers, which transportation modes it should use, or how to source goods and materials more strategically. The proportion of 3PLs that serve as consultants has grown steadily from 78% of our survey respondents in 2022 to 83% in 2023 to 89% in 2024.
Direct-to-store transportation is the second-most-common special service offered by 3PLs, but it’s slightly less common than last year. In 2024, 69% of 3PL respondents offer that service, compared with 72% in 2023. This year’s survey also shows a greater focus on sustainability and green logistics. In 2023, that was number 5 on the list of special services. This year it’s number 3, offered by 66% of 3PL respondents.
Other services offered by more than half of 3PLs this year are import/export/customs services (64%) and reverse logistics/product lifecycle management (63%).
The service category that has seen the biggest jump is contingency/crisis planning. In 2023, 31% of 3PLs could help shippers avert supply chain disruptions. Today, 43% offer that service.
Poor customer service is the factor most likely to torpedo a 3PL partnership. But service doesn’t loom as large in 2024 as it did one year ago. In 2023, 60% of shippers pointed to poor customer service as the top deal breaker, while in 2024, that number has fallen to 36%.
As customer service is triggering less tension, broken promises are triggering more. Twenty-nine percent of shippers tell us that failed expectations are the top reason why a 3PL partnership might fall apart, compared with 17% in 2023. And in inflationary times, shippers are watching their dollars more carefully. This year, 21% cite cost as the top reason why these partnerships fail, compared with 11% in 2023.
While keeping a close eye on costs, shippers still value good service above price. In this year’s survey, 74% of shippers indicate that service is the more important factor of the two. That’s a healthy number, but it’s lower than in 2023, when 81% of shippers chose service over price.
A stronger focus on price makes sense at a time when the cost of all sorts of goods and services forces companies to look for savings wherever they can find them. Still, logistics executives realize that paying a bit more to work with a 3PL that offers excellent service can reduce costs in the long run, as the 3PL helps the shipper manage its supply chain more efficiently. That’s why nearly three-quarters of shippers still value service over price when they engage with 3PLs.
Several of the top strategies that shippers and 3PLs use to manage challenges involve geography—where a company sources or produces, and how goods flow through the supply chain to ultimately reach customers. Those strategies include DC network optimization and realignment (cited by 57%), supply chain design (57%), and nearshoring or reshoring (55%).
Another popular strategy is to use a fourth-party logistics (4PL) provider or lead logistics partner (LLP) to orchestrate the activities of various service providers. This year, 52% of respondents mentioned that strategy, making it a bit more popular than last year, when the number was 46%.
Still another that has moved up the list is the use of lean best practices. In 2023, 44% of respondents mentioned a focus on lean; in 2024, 52% of respondents say they are striving to improve efficiency and eliminate waste through lean practices.
3PLs continue to be the go-to source for all manner of transportation services. Motor freight sits at the top of the list with 82% of shippers in our survey indicating they purchase over-the-road transportation through their 3PLs—up from 67% in 2023.
Meanwhile, a robust number—74%—turn to logistics partners for expedited transportation and small package deliveries.
Not surprisingly, most shippers are investing in technology. Seventy-two percent say they buy transportation management systems or warehouse management systems or other logistics applications, up significantly from last year. Sixty-nine percent buy third-party logistics solutions.
Fewer shippers purchase other modes of transportation through their 3PLs but the numbers are still significant: 54% buy air freight or expedited services, 44% purchase ocean or ocean intermodal transportation, and 44% procure rail or intermodal services.
One shipper might build a deep relationship with a single 3PL that meets all its needs and finds opportunities across different aspects of its operations. Another shipper entrusts different 3PLs with different activities, geographies, or business divisions. Neither approach is best, say 39% of this year’s shipper and 3PL respondents. It all depends on individual circumstances.
Another 33% of respondents this year say it’s best to forge a partnership with a single 3PL. That’s significantly more than the 23% who recommended that course in 2023. The remaining 28% this year say it’s best to work with more than one 3PL.
When you want to transport goods by truck, most 3PLs can help. Ninety-four percent offer truckload services, and 91% provide less-than-truckload (LTL) transportation. Many 3PLs—78%— arrange intermodal moves, while 67% offer general rail services.
3PLs in our survey offer a range of warehousing services. The most common of these services are crossdocking (82%), transloading (74%), and pick/pack, subassembly (70%). In addition, more than half of 3PL respondents provide fulfillment, distribution center management, vendor managed inventory, ecommerce, or site selection.
The vast majority of 3PL respondents, 91%, manage inbound logistics for shippers. Seventy-one percent can serve as lead logistics or fourth-party logistics providers, and 70% handle inventory management. Other logistics services offered by more than half of respondents include just-in-time delivery, omnichannel logistics, vendor management, and logistics process engineering.
Of the technologies that 3PLs deploy on behalf of customers, or help customers implement themselves, the most common are two old standbys, transportation management systems (TMS – 92%) and electronic data interchange (EDI – 91%).
Many 3PLs also use or offer digital tools for visibility (83%) or optimization (77%), both of which are often TMS functions. Other popular capabilities include ERP integration, customer or supplier relationship management, warehouse management, supply chain design, and predictive analytics.
While 67% of our 3PLs have seen sales increase by some amount since last year, that pales beside the 81% who were enjoying higher revenues in 2023. Meanwhile, 33% of this year’s respondents have seen revenues hold steady or fall, compared with 19% last year.
While most 3PLs are making a profit, they’re probably not popping as many champagne corks over their results as in recent years. Sixty percent of the 3PL respondents who reported to us in 2024 saw profits increase over the past year, compared with 82% in the 2023 survey.
Among those companies that saw profits rise, only 9% saw them go up by 20%, while 5% saw them increase by 15%. The more typical gains were in the 5% to 10% range. Seventeen percent of respondents this year saw profits fall year-over-year, compared with 3% in last year’s survey.
3PLs added new customers over the past year at a somewhat lower rate than in the year before. In 2024, 75% report some kind of increase, compared with 81% in 2023. And the gains that 3PLs enjoyed in 2023-24 are smaller than they were the year before. For example, 11% of 3PLs reported in 2024 that their customer bases had increased by 20%; last year, 24% of 3PLs reported gains of that size.
Like much of the rest of the business world, most of our 3PL respondents, 87%, expect artificial intelligence to bring big changes to their operations. If they’re not already using AI to perform sophisticated analytics, and perhaps to automate some decision-making and interactions with customers or carriers, they could be doing that soon.
Beyond AI, no single technology has thoroughly seized the imaginations of our 3PL respondents. But a healthy 44% expect driverless vehicles to make a big impact on the industry—exactly the same proportion of respondents who focused on that innovation last year.
Several technologies are drawing somewhat less interest in 2024 than in 2023. For example, last year 40% of 3PLs said the internet of things (IoT) would make a major impact, compared with 32% this year. Interest in blockchain has also slipped. In 2023, 28% of 3PLs said it would upend the way companies manage their supply chains. In 2024, that number is 20%.