Can Existing 3PLs Grow Fast Enough to Address Demand?
This year has brought unprecedented challenges and opportunities to the third-party logistics (3PL) warehouse space. Since the beginning of 2020, ecommerce has seen unprecedented growth, growing the same amount in a three-month period as ecommerce grew in the previous ten-year period. With the tremendous surge in demand, many 3PLs have had to scramble to scale to address new volumes, implement new technology, identify additional warehouse space, and map out broader 4PL networks. But, will that suffice to address demand?
Nearly 73% of 3PLs surveyed during a recent webinar reporting increases in order volume, and nearly 61% not having a readily available contingency plan in place for the volume driven by unprecedented ecommerce demand. Considering this, 3PL warehouses have had to evolve rapidly to fully harness the opportunity. For some 3PLs servicing verticals that have experienced slowdowns, it means shifting focus to acquire and diversifying their customer base. For others in markets that have expanded, it means optimizing space and processes that may have already hit capacity.
Even with 3PLs continued diversification and expansion, new players have emerged to see if they can take advantage of this opportunity as well.
Lack of Warehouse Space Limits 3PL Expansion
With warehouse vacancy rates hitting a near-record low of 4.9% in the US and ecommerce demanding 3x the warehouse space of physical retailers, competition and increasing rents have dampened many companies’ expansion hopes. Rather than focusing on expanding their physical and geographical footprint, many 3PLs’ expansion plans have required pivots leading them to first optimize existing space and build out extended networks with other 3PLs or private warehouses with available space for storage and overflow. This has accelerated the much talked about concept of fourth-party logistics (4PL) providers, who manage their own space as well as a network of additional warehouses.
Many 3PLs have evaluated and expedited implementation of new warehouse management system (WMS) software to also maximize process efficiencies and increase throughput to meet the increasing demand. Combining new WMS technology improvements with FAST warehouse optimization has enabled 3PLs to bring on new customers and continue their growth. However, even with this we’ve heard many 3PLs say they’ve had to become more selective with the new business they take on to ensure they maximize space while also maximizing profitability. So where do companies go when they can’t find a 3PL to handle fulfillment for them?
The Emergence of the Hybrid Public/Private Warehouse
Where opportunity exists, someone will emerge to harness it. To better paint the picture of these market entrants, let’s start with a couple quick definitions:
Private warehouse. A private warehouse stores goods or materials in a warehouse owned and operated by a single business or manufacturer.
Public warehouse. A public warehouse stores goods or materials of multiple independent businesses while providing a variety of services for a fee or on a contract basis usually owned by a third-party logistics (3PL) business.
As many private warehouses typically make up only a component of a larger business, historically they have focused purely on their fully owned inventory. However, as the pandemic surged earlier this year causing economic challenges for many businesses, savvy businesses looked for opportunities to make up lost revenue and offset their costs. Of the possible opportunities available, warehouse space often rose to the top because of cost and long-term leases companies couldn’t easily break, making it an area of immediate concern for troubled businesses.
Supply chain and logistics professionals make up a tight knit community. Upon hearing of open or under-utilized warehouse space, companies will quickly identify ways to use that space, whether for storage or for additional revenue streams. This has proven a great entryway for private warehouses to become hybrid warehouses or to expand revenue streams into the 3PL warehouse market to take on clients of their own.
How Private Warehouses Have Evolved into 3PLs
During the past several months, we’ve seen private warehouses try to enter the 3PL warehouse space, quickly realizing their systems and processes lack the ability to scale and provide basic visibility needed to service their newfound customers. Often their systems have closely aligned with their own operations and don’t have key features required for 3PL warehouses, including: logical separation of inventory, ability to track fees, billing schedules, or services charges by individual customer, reporting, and the opportunity to offer a self-service portal for warehouse customers.
Upon trying to meet this increased demand, the successful private warehouses crossing into 3PL territory have made early investments in WMS technology designed specifically to support necessary integrations such as shopping carts, best practice workflows, and multi-client operations.
Finding Success in Unprecedented Times
Whether a 3PL looking to scale or a private warehouse expanding into 3PL territory, the right WMS software and integrated technology can represent the difference between success and failure in today’s economy.
Written by Chelsea Mori
Chelsea is an experienced marketing and demand generation strategist with over 17 years of B2B experience. She oversees demand generation strategies, campaigns, and brand awareness programs to solidify 3PL Central as the leader in warehouse management software. A multi-dimensional marketing operations professional, Chelsea has built a track record of driving new business through creative demand and lead generation programs.