Top 40 Global 3PLs
Special Report
Kuehne + Nagel ( K + N ), the third-largest 3PL on the list , is a case in point . The forwarder reported $ 26.9 billion in revenue in 2020 , rising to $ 45.1 billion in 2022 , a 67.7 % increase in just two years . The company ’ s $ 29.7 billion turnover in 2023 was down 34.2 % year over year , but remained in line with the pre-pandemic trend .
In light of the expected drop in revenue , K + N CEO Stefan Paul suggested that a key metric for the company was gross profit , which fell at half the rate of its revenue as the company focused on yield . It also is midway through a headcount reduction of 1,300 people globally .
“ We see some stabilization of demand , and we are well-positioned to maintain or expand our share of a recovering market ,” Paul said during the company ’ s March 1 earnings call .
‘ Not normal ’ volumes
K + N was hardly alone in navigating a difficult market in which absolute demand wasn ’ t exactly absent but managing shareholder and board expectations raised by the highly profitable pandemic years were always going to present a challenge .
“ Many companies had pressure from boards , who saw the 2021 and 2022 volumes as normal , and they were not ,” said a 3PL CEO who asked not to be identified . “ Volumes from all customers dropped , but we saw this most on the inbound from Asia . This was caused by the well-documented inventory issues in 2022 that meant bloated warehouses for most customers . We knew this was coming , so [ it was ] no surprise really .”
The evergreen question of how 3PLs manage a downturn also came to the fore . Some view periods of weak demand and rates as a time to hunker down , get costs under control and survive until the next up cycle . Others see it as a time to expand market share by offering competitive — sometimes below-market — rates that position them to have a larger customer base ahead of the next up cycle . “ Our strategy is simple : volume ,” an executive at another 3PL , who also asked not to be identified , told the Journal of Commerce . “ Volume over margin in a market where now many of the big boys are turning away from loss-making or low-margin business .”
In the 3PL business , “ you can get volume , or you can get margin , but you can ' t get both ,” the executive said . “ If you focus on margin , it is at the expense of volume . But if you focus on volume and you ‘ work ’ the business with strong negotiations , a tight operation and the right partners , eventually you get margin .”
Indeed , K + N said in its earnings call that it is actively dropping cargo segments that don ’ t match its yield expectations , opening the door for other 3PLs seeking to grow volumes in the immediate term .
‘ Buying business ’
Only four companies in the top 15 saw volumes increase : Amazon , CEVA Logistics , GXO and Rhenus Logistics . Collectively , those four companies grew their revenues by $ 28.2 billion , while the other 11 in the top 15 ceded $ 66.1 billion in revenue in 2023 .
One 3PL source who asked not to be identified told the Journal of Commerce that ’ s symptomatic of a shift in pricing power in ocean freight .
“ Something very interesting happened in the ocean freight forwarding market that I have not seen before ,” the source said . “ Rates plummeted , and most forwarders adopted the tactic of ‘ buying business .’ Historically this has been successful as the forwarders gain market share and then go back and re-price the lanes higher .
“ But this time it isn ’ t working ,” they said . “ Customers seem to be savvier and more informed about economics , and the argument from ocean carriers that ‘ you are not as big as Walmart , so you have to pay more ’ isn ’ t flying . Now , most forwarders are seeing cash flow issues as they work through the surplus gained in 2021 – 22 to offset losses .”
Caitlin Murphy , CEO of Global Gateway Logistics , said 2023 brought 3PLs and their customers back into a more normal range on rates , even if geopolitical events threatened to bring “ turbulence ” back into the market .
“ BCOs were able to gain back percentage points in margin they may have lost due to shipping cost inflation in the years prior ,” Murphy said . “ Overall , 2023 brought back some normalcy to a very chaotic market .”
Managing headcount during the year was a problem for virtually all 3PLs in the top 40 . While Flexport , which is not on the list , garnered the most headlines for layoffs in 2023 , most 3PLs quietly addressed staffing levels .
Expeditors , for instance , said it let employees go in all four quarters on the way to a 45.5 % decline in revenue .
“ Despite reducing headcount in each quarter of 2023 and bringing costs down both sequentially and year over year , expenses are still high when compared to our efficiency target , and we are working to bring expenses down further ,” Expeditors CFO Bradley Powell said in a Feb . 20 statement accompanying the company ’ s full-year results . “ Even though compensation , our largest and most variable expense , is 20 % lower than the same quarter a year ago , just about everything else is more expensive .
“ We are not as efficient as we need to be for the current environment of excess capacity , weak demand , soft rates and economic uncertainty ,” Powell added .
email : eric . johnson @ spglobal . com
26 Journal of Commerce | April 8 , 2024 www . joc . com