Definition and categorization of 3PL
Third-party logistics service providers (‘‘3PL providers’’) typically specialize in integrated operations such as warehousing and transportation services which can be scaled and customized to meet customers’ individual needs based on market conditions, including the demands and delivery service requirements for their products and materials. 3PL providers target particular functions within the supply chain management process such as warehousing or transportation.
The advantages of outsourcing logistics to 3PL service providers include low capital commitment, cost savings and flexibility. First, there is no need for a warehouse or transportation facilities if a company outsources its logistics function, thereby reducing the company’s required capital commitment. Secondly, 3PL providers are more knowledgeable and have superior expertise in logistics, which can efficiently reduce the overall costs of logistics. Thirdly, 3PL providers can offer higher flexibility in terms of geographic distribution and the provision of other value-added services that companies are incapable of providing for themselves.
Market sizes of China’s logistics and 3PL industries
The logistics industry in China has continued to develop at a steady pace, driven by China’s growing economy, people’s rising income levels, the rapid expansion of the e-commerce industry, as well as recent improvements in logistics infrastructure. China’s total logistics revenue increased from CNY6,068.3 billion in 2011 to CNY7,900.0 billion in 2016, with a CAGR of 5.4%. With the gradual acceleration of China’s economic growth, and further penetration of logistics services into lower-tier cities in the years ahead, China’s total logistics revenue is expected to reach CNY9,280.0 billion by 2021, with a CAGR of 3.3% from 2016 to 2021.
As an emerging segment in the logistics industry, the 3PL market has shown a strong growth performance in the past five years. The manufacturing industry in China has been gradually transforming itself towards a more quality-focused approach. Therefore, there are now higher requirements placed on the logistics process. On the other hand, an increasing number of foreign manufacturers who were used to outsourcing their non-core operations such as logistics were setting branches in China. Thus, the total 3PL revenue in China increased from CNY616.4 billion in 2011 to CNY1,199.2 billion in 2016, representing a CAGR of 14.2%.
In the forthcoming years, the operation and management systems of the 3PL industry is expected to become more intelligent. This trend will help improve demand for 3PL services, as traditional companies, including state-owned enterprises, is expected to place more and more trust in the service quality of 3PL providers. China’s total 3PL revenue is expected to reach CNY 1,886.6 billion by 2021, with a CAGR of 9.5% from 2016 to 2021.