TIA Report Reflects Strong Q2 Numbers for 3PL Industry

The Transportation Intermediaries Association (TIA) recently released its 3PL Market Report for the second quarter of 2020. The report reflects unexpectedly strong numbers for the 3PL industry, even amid COVID-19 disruptions. In this article, we’ll summarize the findings and anticipated implications from this report.

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What is the TIA 3PL Market Report?

The Transportation Intermediaries Association (TIA) is the largest group representing third-party logistics (3PL) companies, with over 1,700 3PL members. Their goal is to help transportation companies better manage their organization for growth and profitability. This report in particular addresses where TIA members currently stand, so the TIA can help establish competitive advantage footholds moving forward.

This quarterly 3PL Market Report congregates data to create a comprehensive and accurate view of the 3PL industry at present. Using monthly data submissions and surveys from TIA members, they can get a good idea of the business conditions in the 3PL industry. The report includes detailed 3PL activities by transportation mode, and it measures volume, revenue, margin, and margin percentages on a quarterly and annual basis. It also includes a summary by Noël Perry, the economist at TIA, who we will reference in this article.

What were the key results from the Q2 3PL Market Report?

The 3PL Market Report found that the Q2 volumes and margins were surprisingly strong, even with some gains over Q1. Considering Q2 was the height of the pandemic and a struggling economy, this was good news for the 3PL industry on the whole. Perry believes that this was in part because the goods economy didn’t get hit as hard as the service economy, so numbers weren’t changed all that much for transportation. Additionally, brokers had been working towards larger margins for the past three quarters, so their work finally came to fruition with greater margin percentages by the time COVID-19 hit.

Still, the numbers overall were lower than 2019 year-over-year, but that was to be expected considering the pandemic interruptions.

The report breaks down performance in terms of transportation mode. Truckload is the dominant mode at 72%, together with Intermodal and LTL comprising 97% of all activity. Air, warehouse, and miscellaneous services account for the remaining 3%.

Some of the notable facts and figures:

• Total shipments declined 1.2% compared to Q1
• Revenue declined 8.1% compared to Q1
• Total invoice per shipment declined 7% compared to Q1
• Truck invoice per load dropped 3.5% compared to Q1
• Truckload and intermodal had the largest decline in volume since 2015
• Truckload gross margin increased 140 basis points from Q1, compared to 170-bps increase for all margin activity
• Intermodal gross came in at 11.6%, up from 9.9% in 2019
• Gross margins in LTL went up 30bps overall in Q1 and Q2
• 3PLs under $16 million in size saw gross margins rise to 25% from 22.9%
• 3PLs in excess of $100 million in size saw margins rise just to 22%

The data also indicates that shippers were relying on 3PLs more so than obtaining capacity direct from asset providers. Even though 3PL volume slightly declined in Q2 by 6%, the total volumes dropped by 9.9%, so 3PLs are persisting as one of the strongest modes in 2020. Additionally, the market share of 3PLs rose in Q2 this year compared to last, and TIA reports that volumes moving through 3PLs outperform the growth rates for all other truckload volumes about two-thirds of the time. This signals a rise in the popularity, usage, and profitability of 3PLs.

Are truckload rates still set to skyrocket in 2020?

What do the Q2 numbers mean for the future?

Economist Perry warns not to put too much weight on the numbers in this report, though. The period isn’t comparable to anything in recent history, so we have to be careful to use early 2020 numbers as a baseline for evaluation. First, because, the economy went from record shrinkage to rapid growth in late Q2 as lockdowns occurred and then released. The numbers were weak for the quarter because the rebound happened late in the game, but we still saw that the economy was in a growth phase while leaving Q2.

Second, the first and second quarters of this year are very different. Q1 was business as usual while Q2 saw massive changes from the pandemic. Comparing the quarters without considering external factors is impossible and illogical.

Third, spot markets were dropping in 2019. The comparisons year-over-year are going to “show weakness regardless of what happened in Q2.”

Perry emphasizes how critical it will be to consider historical data alongside future predictions and external factors in order to truly get an idea of how these numbers will have an impact on the trucking industry and the economy on the whole, now and moving forward.

By looking at this TIA report, we can see that the trucking industry hasn’t been radically or irreversibly damaged by the COVID-19 economy. (Rather, the virus simply highlighted supply chain weaknesses that need to be addressed.) On the contrary, the numbers in these reports show that despite an initial decline, numbers are steadily increasing and will likely continue to do so for the remainder of the year into next.

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