TIA report points to steady improvement in 3PL sector

Signs of improvement in the third-party logistics (3PL) sector are apparent, based on the results of the 1st Quarter 2011: TIA 3PL Market Report by theTransportation Intermediaries Association(TIA).

This is the tenth quarterly report of its kind issued by the TIA. The report first came out in April 2009 and focuses on 3PL industry trends and practices, with an objective to provide a representative understanding of what is happening in the 3PL industry. TIA officials noted that this report is different from its predecessors in that it is more comprehensive due to a host of new data reporting elements.

Data for the report is based on confidential feedback from 39 TIA member companies, whom answer questions on various topics, including: number of shipments by mode, total billing, and gross margins. Other data collected are customer-based forecasts to offer up expectations of near-term business volume.

Participating TIA member companies are broken up into the following categories for comparison to avoid anti-trust issues, according to the TIA. The categories are: under $500,000 in gross billing; $500,000 to $1 million in gross billing; $1 million to $3 million in gross billing; $3 million to $10 million in gross billing, and more than $10 million in gross billing.

According to the report, total dollars billed in the first quarter for all study participants—at roughly $1.8 billion—was up 17.1 percent compared to the first quarter of 2010, with four of the five categories showing growth in total dollars billed. First quarter revenue was down 1.3 percent compared to the fourth quarter of 2010.

On the shipment side, the first quarter—at roughly 1.5 million shipments—was down only 0.1 percent compared to the fourth quarter or 2010 and was 7.4 percent ahead of the first quarter of 2010. Revenue per shipment and profit margin percentage for the first quarter at $1,631 and 14.9 percent were down 1.4 percent and up 3.6 percent compared to the fourth quarter of 2010 and were up 9.0 percent and down 2.9 percent compared to the same timeframe a year prior.

In an interview with LM, Mark Christos, a member of the TIA Board of Directors, Chair of the TIA 3PL Market Report and vice president vice president at Matson Integrated Logistics, said that while shipments were up annually, the fact that annual intermodal and less-than-truckload (LTL) growth percentage were both at least double that of truckload.

Intermodal-at 211,730 shipments—was up 11.7 percent, and LTL—at 88,658 shipments—was up 24.5 percent. Truckload—at 829,510 shipments—was up 5.3 percent.

“Historically, we had not seen that and what that tells us is that the brokerage community is expanding its service offerings and getting more adept at servicing customers in a wider range than just through over-the-road truckload,” said Christos.

He also noted that while shipment volumes grew, profit margin percent decreased slightly [truckload at -1.9 percent, LTL at +1.5, and intermodal at -1.4 percent year-over-year], with intermodal and truckload being the most capacity-constrained modes.

The primary reason for the annual decline in truckload and intermodal profit margin percentages declining, he said, was capacity. While fuel prices factor into this as well, Christos said TIA did not break out fuel revenues and separate the exact delineation according to fuel expenses, but he did state that based on Department of Energy cost-per-gallon data fuel in the first quarter of 2011 was up 26 percent annually.

“Logically-speaking, truckload consumes the most fuel out of those modes and fuel increases have an effect on tightening margins of truckload,” he said.

Looking at this data overall, Christos said it is encouraging, especially on an annual basis, as the first quarter of 2010 was a rough quarter for the 3PL market. But he said the annual volume increases came at the expense of higher profit margins because of capacity and higher rates charged by carriers.

The sequential trends outlined in the report show that truckload margins have been improving over the last four quarters, and intermodal margins have also been fairly consistent, and LTL has been fairly consistent.

“Most 3PLs will tell you they have seen more improvement in their margins from the spot business than their contract business,” he said. “Their mix may be changing and they may have better opportunity to improve yield on the spot more so than on the contract side. We are seeing increases in spot market activity.”