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January 2 2023

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Januar y 2, 2023 | Journal of Commerce 105 Logistics A look back: A roller-coaster year for the 3PL industry saw shippers scrounging for air and ocean capacity at the beginning of 2022, only for the market to slide in the second half as inflation and inventory woes damp- ened freight demand. Forwarders were caught in a precarious position; capacity allocations were constrained due to vessel capacity being tied up by port congestion in North America and Europe, as well as by a desire by ocean carriers to increase direct bookings with shippers. As a result, 3PLs had little choice but to prioritize the capacity they could secure for existing customers, limiting their ability to serve new customers. In the second half, although supply chain snarls did not completely unravel, congestion eased and transit times shortened, using 3PLs first. Still, any uptick in demand for forwarding services must be weighed against the continued threat of economic recessions in North America and Europe, which could hamper cargo volumes in 2023. Consolidation within the 3PL industry during the pandemic — not to mention forwarding acquisitions by non-traditional providers, such as container lines, terminal operators, and retailers — will make an already uncertain 2023 that much less com - fortable for mid-market 3PLs. Pro- ductivity metrics like revenue, profit, or shipment efficiency per employee are likely to reassert themselves as key measures of 3PL success in a far less frothy freight environment. A new normal: The pandemic market proved that even asset-light or asset-free providers could prosper in high-volume, high-volatility markets. In a weaker demand environment, most 3PLs will feel they are in a more comfortable position than are asset-heavy providers, which take on a higher level of cost and risk. Shipper demand for technology has also increased such that forward- ers can no longer view it as a mere vanity purchase, and 3PLs will be making investments that reflect this increased demand. Some of the investments forwarders made in expanding their headcounts, how- ever, could be rolled back in future budgets in favor of automation. JOC email: twitter: @LogTechEric giving 3PLs access to a more typical amount of capacity with which to package their value-added services, which were still in high demand. At the same time, weaker overall volume also created a highly price- competitive market, with margins thinning as rates tumbled in the fourth quarter. Even so, forwarders — much like asset-based carriers — raked in record profits for the second straight year. A look ahead: Generally speaking, the inevitable fall from record-smashing volume levels during the COVID-19 pandemic will be a net positive for 3PLs. Smaller shippers that were forced to seek out capacity directly from asset-based transportation providers, for example, are likely to return to a traditional pattern of The big picture: The volatile supply chain environment of the last two years has benefited forwarders and third-party logistics providers (3PLs) in multiple ways. As record demand and widespread disruption soaked up all the available vessel capacity on offer from asset-based carriers, shippers turned to asset-light providers for help in accessing what little space was le. However, a sharp decrease in freight demand in the second half of 2022 is likely to put even the most well-run 3PLs under pressure in the first half of 2023 as competition in a fragmented industry heats up and margins inevitably tighten. Much like asset- based carriers, 3PLs generated record profits for the second straight year in 2022. Riding the downslope Pandemic profits leave 3PLs well positioned as freight demand wanes By Eric Johnson 2023 ANNUAL REVIEW & OUTLOOK

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