The majority of 3PLs are facing headwinds in 2014 and will be struggling to match their performance of the past year. Industry research and consulting firm Armstrong & Associates envisages growth potential for the sector in the year ahead but warns that challenges are increasing.

For small players, the mounting pressure on margins may spell the end of the road.

According to Armstrong & Associates, the global 3PL market grew to an estimated US$704 billion, while in the US gross 3PL revenues climbed past the $150 billion mark, buoyed by growth in all segments. The Asia-Pacific region constituted the largest chunk of the market, commanding 36 percent of the total, while North America came in second with $177 billion, claiming 25 percent market share.

Armstrong predicted that China should be leading growth in 3PL business over the next two to five years, but its momentum is expected to slow down from double-digit growth so far to high single-digit numbers. At the same time, the focus will likely shift more from international to domestic solutions.

The Asia-Pacific region, excluding China and Japan, should see growth between four and five percent, according to Armstrong. In terms of percentage growth, Africa is going to be a hot market. However, this growth is off a modest base. Despite an ongoing flow of investment from outside the continent, Africa’s revenue numbers remain modest, Armstrong notes.

Of concern for the industry is the diminished momentum in global trade. Global exports have fallen from 36 percent of global GDP in 2008 to 33 percent. As a result, international transportation management will no longer enjoy double-digit growth, at least for the next five years, Armstrong warned.

Another worry for providers in this arena is the aggressive push from container shipping lines to bypass logistics management firms and sell directly to shippers. Logistics firms’ share of the global TEU volume has slipped from 39 percent to 35 percent, Armstrong pointed out.

In warehousing and distribution – above all in value-added activities in this arena – Armstrong predicted continued incremental expansion. The emphasis in this segment will be more on returns, automation and system integration.

According to the Agility Emerging Markets Logistics Index 2014, produced in tandem by Agility and Transport Intelligence on an annual basis, the Asia-Pacific arena will be a major battleground this year. Some 58 percent of respondents expect this part of the world to be the world’s fastest growing region in the year ahead.

Latin America came in second, favoured by 25 percent of respondents.

Of the top 10 growth markets for 2014, four are in the Asia-Pacific region – China, India, Indonesia and Malaysia, the survey indicates.

Logistics providers polled for the study are upbeat on the potential of emerging markets. Seventy-two percent expect to see growth there this year, and almost 75 percent rated prospects for emerging markets either good or very good.

By virtue of its size, the China market remains a key focus area for many operators. Nevertheless, 63 percent of those polled predicted that manufacturing would shift away from China. For players with strong capabilities in the Asia-Pacific region, this seems not particularly worrying. The list of alternative locations for production in the Agility index is led by Vietnam, Mexico, Indonesia and India.

In the US, logistics providers face ongoing pressure on margins in the domestic transportation management sphere, which is still the segment with the strongest growth potential, Armstrong warned.

This will result in the demise of smaller or traditional “mom and pop’’ freight brokerages, the consultancy predicted. The widening gap in IT capability between larger and smaller players reinforces this danger, giving the former a strong edge over their smaller rivals.

While opportunities for growth are there, 3PLs are facing stiffer headwinds in the year ahead, and margins look set to shrink, according to the Armstrong survey.