From 2014 to 2017, prices for 3PL services have been rising at an estimated average annual rate of 1.3%, negatively affecting buyers. Rising input costs combined with growing demand have caused prices to rise. However, minimal fluctuations among price drivers have contributed to low price volatility, which buyers can use to their advantage. Moreover, the prevalence of multiyear contracts gives buyers a powerful negotiating tool that can be used to lock in favorable pricing.
During the three years to 2017, the price of transportation and storage has been rising significantly. As a key cost to suppliers, growth in transportation and storage prices have pressured costs upward. In turn, rising purchase costs have forced suppliers to raise prices or risk compromising their profit margins. In light of rising demand, suppliers have the flexibility to raise prices alongside growing costs to help protect their bottom line with little risk of losing business.
Demand growth has made it more difficult for buyers to negotiate, pressuring prices upward. Growth in the total trade value and industrial production index indicates strong economic growth, which has translated into improving sales in a wide range of markets. In turn, growing businesses have turned to 3PL suppliers to help them scale their operations quickly, which has led to strong sales in the 3PL market. Moreover, consumer spending has increased, suggesting that retail businesses in particular have been demanding more 3PL services to accommodate an influx of online and retail purchasing activity. As buyers across all types of downstream markets have increased their demand, suppliers have been enabled to increase prices. Fortunately, price volatility has been low, allowing buyers to anticipate price trends and budget accordingly while competition in the market help to temper growth slightly.
Price growth for 3PL services is forecast to accelerate slightly in the coming three years. From 2017 to 2020, prices are expected to rise at an average annual rate of 1.8%. Price growth is expected to hamper buyer negotiation power in the coming years. Upward trends in input costs and demand are anticipated to continue, leaving buyers in a similar negotiating position to the past three years. Fortunately, price volatility is expected to remain low, helping buyers to anticipate trends and budget accordingly.
Input cost drivers, such as average wages and the price of transportation and storage, are poised to continue rising as a result of anticipated economic growth. As a result, suppliers will continue to face increasing operating costs, which will prompt them to raise prices for 3PL services in the face of growing demand. Growth in total trade value, the industrial production index and consumer spending will point toward increasing demand for 3PL services. As buyers produce, trade and sell a greater amount of goods in the next three years, they will require more services to handle the associated logistics. In turn, growing demand will give suppliers the ability to raise prices without fear of losing business.
The anticipated accelerated rate of price growth in the coming years suggests that buyers will have a slightly more difficult time negotiating discounts in the future, which should prompt buyers to look into contracting these services sooner rather than later to take advantage of lower current prices. To combat rising prices, buyers can leverage high-volume orders and multiyear contracts to reduce the supplier’s costs (through economies of scale) and risk, potentially leading to discounts.